Can I get help on this? when income increased by 10%, the quantity of membership

Question

Can I get help on this?

when income increased by 10%, the quantity of memberships of athletic clubs changed from 100 to 115, the quantity demanded of spring water changes from 80 to 85 and the quantity demanded of soft drinks decreased by 2%. Use the information to answer the following questions. Show your work. 2 a. Is club membership a normal or an inferior good? Compute the income elasticity. b. Is demand for club memberships income elastic or income inelastic? c. Is spring water a normal or an inferior good? Compute the income elasticit d. Is a soft drink a normal or an inferior good? Compute the income elasticity.

Explanation / Answer

Income elasticity is given as em = % change in quantity demanded / % change in income

a) Income elasticity = (115 - 100)*100/100 divided by 10% = 1.5. Since elasticity value is positive, club membership is a normal good.

b) It is income elastic because the value of elasticity is greater than 1.

c) Income elasticity = (85 - 80)*100/80 divided by 10% = 0.625. Since elasticity value is positive, spring water is a normal good.

d) Income elasticity = -2% divided by 10% = -0.2. Since elasticity value is negative, soft drink is an inferior good

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