Using the income elasticity of demand to characterize...

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7. Using the income elasticity of demand to characterize goods Data collected from the economy of Royal City reveals that an 18% increase in income leads to the following changes: • A 29% increase in the quantity of aces demanded • A 17% decrease in the quantity of spades demanded • A 14% increase in the quantity of chips demanded Compute the income elasticity of demand for each good and use the dropdown menus to complete the first column in the following table. Then, based on its income elasticity, indicate whether each good is a normal good or an inferior good. ( Hint : Be careful to keep track of the direction of change. The sign of the income elasticity of demand can be positive or negative, and the sign confers important information.)

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