Data collected from the economy of Royal City reveals that a 16% increase in income leads to the following changes:
An 18% increase in the quantity of flops demanded
A 14% decrease in the quantity of clubs demanded
A 30% increase in the quantity of houses demanded
Compute the income elasticity of demand for each good and use the dropdown menus to complete the first column in the following table. Then, based on its income elasticity, indicate whether each good is a normal good or an inferior good. (Hint: Be careful to keep track of the direction of change. The sign of the income elasticity of demand can be positive or negative, and the sign confers important information.)
Which of the following three goods is most likely to be classified as a luxury good ?
Clubs
Houses
Flops