Asked by Dennie Katuna on Jun 30, 2024
Verified
The income elasticity of demand for housing property is exactly 1.40.Due to a recession,you expect incomes to drop by 5% next year. How will consumers adjust their purchase for housing property?
A) Buy 5% more houses
B) Buy 5% fewer houses
C) Buy 7% more houses
D) Buy 7% fewer houses
Income Elasticity
A measure of how much the demand for a good or service changes relative to a change in consumers' income.
Housing Property
Real estate that includes residential homes such as single-family houses, apartments, and condos, used for living purposes.
Recession
A period of temporary economic decline during which trade and industrial activity are reduced, usually identified by a fall in GDP in two successive quarters.
- Comprehend how variations in income affect the consumption of products.
Verified Answer
MH
Molike HononoJul 01, 2024
Final Answer :
D
Explanation :
The income elasticity of demand for housing property being 1.40 implies that a 1% drop in income would lead to a 1.40% drop in demand for housing property. Therefore, a 5% drop in income would lead to a 7% drop in demand for housing property. Hence, consumers would buy 7% fewer houses. So, the correct answer is D.
Learning Objectives
- Comprehend how variations in income affect the consumption of products.