Suppose income increases by 25 percent and, as a result, the quantity of a particular brand of automobile demanded (holding the price for this particular automobile constant) decreasesdecreases by 37 percent. The income elasticity of demand for this brand of car is. This particular brand of automobile is a(n) good. In another example, suppose market research shows that a particular brand of truck is a normal good and a luxury. If so, then the income elasticity of demand for this truck is:.
A. Less than 1 but greater than 0.
B. Negative.
C. Greater than 1.
D. Positive.
E. Zero.

-1.48; Inferior good

Option (D) is correct.

Explanation:

Given that,

Income increases by 25 percent and quantity of a particular brand of automobile demanded decreases by 37 percent.

Therefore, the income elasticity of demand for this brand of car is as follows:

= Percentage change in quantity demanded ÷ Percentage change in Income

= (- 37) ÷ 25

= -1.48

Negative income elasticity of demand indicates that this particular brand of car is an inferior good.

There is a positive relationship between the income of the consumer and the quantity demanded for normal goods. This means that as the income of the consumer increases then as a result the quantity demanded for normal goods also increases and as the income of the consumer decreases then as a result the quantity demanded for normal goods also decreases.

answer; capital structure decision;