Question

Suppose income of the residents of a locality increases by 5050% and the quantity of gel pens demanded increases by 2020%. We can say that gel pen in economics sense is a/an ______.

• A. luxury good
• B. inferior good
• C. normal good
• D. none of the above

Answer 1

Answer: (C)

normal good

Income elasticity of demand $=\frac{percent△Q}{percent△Y}$ $=\frac{20}{50}=0.4$.

Income elasticity of demand for normal goodsis known to be positive and less than $1$.
From the above, the income elasticity of demand for pen is $0.4$, which is less than 1 and positive.