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- The average annual income rises
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Card 8 / 10: The average annual income rises from $25,000 to $38,000, and the quantity of bread consumed in a year by the average person falls from 30 loaves to 22 loaves. What is the income elasticity of bread consumption? Is bread a normal or an inferior good?
Answer:
Percentage change in quantity demanded = [(change in quantity)/(original quantity)] × 100 = [22 - 30]/[(22 + 30)/2] × 100 = -8/26 × 100 = -30.77 Percentage change in income = [(change in income)/(original income)] × 100 = [38,000 - 25,000]/[(38,000 + 25,000)/2] × 100 = 13/31.5 × 100 = 41.27 In this example, bread is an inferior good because its consumption falls as income rises.
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