Question 17 of 20
0.0/ 5.0 Points
Suppose that the income elasticity of demand for new clothes is positive. Other things being equal, which of the following statements is correct?
A. New clothes are a normal good.
B. There exists a positive relationship between income and the demand for new clothes.
C. The quantity demanded of new clothes decreases as a consumer's income declines.
D. all of the above
And your answer is??
To determine the correct statement, we need to understand what the income elasticity of demand for new clothes means. The income elasticity of demand measures how sensitive the quantity demanded of a good is to changes in income.
If the income elasticity of demand for new clothes is positive, it means that as income increases, the quantity demanded of new clothes also increases. Similarly, if income decreases, the quantity demanded of new clothes also decreases.
Now let's look at the statements:
A. New clothes are a normal good: This statement is correct. A positive income elasticity of demand indicates that new clothes are a normal good. Normal goods are those for which the demand increases as income increases.
B. There exists a positive relationship between income and the demand for new clothes: This statement is also correct. A positive income elasticity of demand implies a positive relationship between income and the demand for new clothes. As income increases, the demand for new clothes also increases.
C. The quantity demanded of new clothes decreases as a consumer's income declines: This statement is incorrect. The correct relationship is that the quantity demanded of new clothes decreases as a consumer's income declines. This is the opposite of what a positive income elasticity of demand implies.
Therefore, the correct answer is A. New clothes are a normal good.