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Johnny Clutch just got a raise from \$900 per week to \$1100 per week. As a result, he decreases the amount of ramen noodles he buys from seven cartons a week to one carton a week. For Johnny, ramen noodles are:
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4. Elasticity
Income Elasticity of Demand
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For which of the following goods is the income elasticity of demand likely to be the lowest?
A
Restaurant meals
B
Generic store-brand bread
C
Organic fresh fruit
D
Luxury watches
Guida verificata passo dopo passo1
Step 1: Understand the concept of income elasticity of demand (YED). It measures how the quantity demanded of a good responds to a change in consumer income, calculated as \(YED = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}}\).
Step 2: Recognize that goods can be classified based on their income elasticity: normal goods (positive YED), inferior goods (negative YED), luxury goods (YED > 1), and necessities (0 < YED < 1).
Step 3: Analyze each good in the list: Luxury watches are typically luxury goods with high positive YED; organic fresh fruit is often considered a normal or luxury good with moderate to high YED; restaurant meals are normal goods with moderate YED; generic store-brand bread is usually a necessity or even an inferior good with low or possibly negative YED.
Step 4: Since the question asks for the good with the lowest income elasticity, identify the good least sensitive to income changes, which is typically a basic necessity or inferior good like generic store-brand bread.
Step 5: Conclude that generic store-brand bread has the lowest income elasticity of demand because its consumption changes little or may even decrease as income rises, unlike the other goods listed.
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