Calculate the income elasticity of demand for DVDs, where a 10 percent increase in income results in a 20 percent increase in the demand for DVDs. Decide from your answer, whether DVDs are normal or inferior goods
Income elasticity of demand for DVDs is +2 (+20 percent/ +10 percent = +2)
In general, if the income elasticity is positive, then the good in question is a normal good because income and demand move in the same direction. DVDs are normal goods because an increase in income results in an increase in demand.
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