SACE Stage 2 Economics Practice Questions - SACE Stage 2 Economics External Assessment Exam

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An economic study finds that when average household income rises by 8%, the demand for instant noodles drops by 12%. What is the Income Elasticity of Demand (YED) and what type of good is instant noodles?

YED = +1.5; instant noodles are a luxury good. YED = -1.5; instant noodles are an inferior good. YED = +0.67; instant noodles are a necessity good. YED = -0.67; instant noodles are a complement good.

Correct Answer:

YED = -1.5; instant noodles are an inferior good.

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