Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes. All else constant, Sefton's income elasticity of demand for potatoes is A) positive, so Sefton considers potatoes to be a normal good and a necessity. B) positive, so Sefton considers potatoes to be an inferior good. C) negative, so Sefton considers potatoes to be a normal good. D) negative, so Sefton considers potatoes to be an inferior good.

Income elasticity of demand potatoes is negative. Potato is considered an inferior goods because demand for an inferior good decreases with an increase in income and increases with a decrease in income.

Last year when the income was $30,000, 60 pounds was consumed. It increased to 80 pounds when the income fell to $20,000.

A normal good will increase with an increase in income and decrease with a decrease in income.

jepessoa jepessoa · Answer 2 · 2020-04-05T05:50:51+02:00

Answer:

D) negative, so Sefton considers potatoes to be an inferior good.

Explanation:

the formula to calculate income elasticity of demand is:

income elasticity = % change in quantity demanded / % change in income

income elasticity = [(80 - 60) / 60] / [(20,000 - 30,000) / 30,000] = (20 / 60) / (-10,000 / 30,000) = 0.333 / -0.333 = -1

Since the income elasticity is negative, potatoes are an inferior good for Sefton. The quantity purchased of inferior goods increases as income decreases. On the other hand, normal goods have a positive income elasticity, since the quantity purchased increases as income increases.

is the percent change in quantity demanded divided by the percent change in income.