Question: A car dealership gathers data on changes in demand and consumer income for its cars for a particular year. 1. When the average real income

A car dealership gathers data on changes in demand and consumer income for its cars for a particular year.

1. When the average real income of its customers falls from $50,000 to $40,000, the demand for its cars plummets from 10,000 to 5,000 units sold, all other things unchanged.

What is the income elasticity of demand? Are cars normal or inferior goods?

2. When the price of cars rises from $30,000 to $40,000, the quantity of cars demanded falls from 100 to 85. What is the price elasticity of demand?

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