The income elasticities of demand for movies, dental services, and clothing have been estimated to be 3.4, 1, and .5, respectively. Interpret these coefficients. What does it mean if an income elasticity coefficient is negative

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Explanation: Movies, dental services, and clothing are all normal goods. Normal goods have a positive income elasticity of demand, when consumers' income rises, more quantity of good is demanded at each price therefore there is an outward shift of the demand curve. Demand and quantity demanded move in the same direction.

These coefficients shows that that a 1 % increase in income will increase the quantity of movies(a normal luxury good) demanded by 3.4%

A 1 % in income will increase quantity of dental services ( normal luxury goo)by 1%

and 1% Income will increase quantity of clothing( a normal necessity) by 0.5%

A negative coefficient shows that a good is inferior.Here, income and quantity demanded move in the opposite direction.

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