To determine the income elasticity of demand, we need to follow these steps:
1. Understand the Concept of Income Elasticity of Demand:
- Income elasticity of demand measures how much the quantity demanded of a good responds to a change in consumer income.
- It is calculated using the formula:
[tex]\[
\text{Income Elasticity of Demand} = \frac{\text{Percentage Change in Quantity Demanded}}{\text{Percentage Change in Income}}
\][/tex]
2. Extract the Given Data:
- Percentage increase in consumer income: 10%
- Percentage increase in the quantity of duct tape consumed: 15%
3. Apply the Formula:
- Substitute the given percentages into the formula:
[tex]\[
\text{Income Elasticity of Demand} = \frac{15\%}{10\%} = \frac{15}{10} = 1.5
\][/tex]
4. Interpret the Elasticity:
- Once we have the income elasticity, we interpret its value to determine what type of good duct tape is.
- If the income elasticity is greater than 1, the good is considered a "Normal Good" because the quantity demanded increases more than the increase in income.
- If the income elasticity is less than 1 but greater than 0, it is still a "Normal Good," but it indicates necessity.
- If the income elasticity is negative, the good is considered an "Inferior Good", meaning the quantity demanded decreases as income increases.
In this case, our calculated income elasticity is 1.5, which is greater than 1.
Therefore, duct tape is considered a "Normal Good."
The correct choice is:
e. 1.5; Normal
