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Assume that a 3% increase in income across the economy produces a 1% decrease in the quantity of fast food demanded. The income elasticity of demand for fast food is ____________, and therefore fast food is _______________

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jepessoa

Answer:

The income elasticity of demand for fast food is 0.33, and therefore fast food is a normal good (classified as basic good).

Explanation:

the formula used to calculate income elasticity of demand = % change in quantity demanded / % change in income

income elasticity of demand = 1% / 3% = 0.33

since the income elasticity is positive, it is a normal good and since the elasticity is less than 1, it is a basic good.

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