The price elasticity for rice is estimated

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The price elasticity for rice is estimated to be – 0.4 and the income elasticity is 0.8. At a price of $0.40 per pound and a per capita income of $20,000, the demand for rice is 50 million tons per year.

a. Is rice an inferior good, a necessity, or a luxury? Explain.

b. If per capita income increases to $20,500, what will be the quantity demanded of rice? (Hint: Apply the income elasticity to the percentage change in income. Then, apply this result to the original demand.)

Reference no: EM131246051

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