A typical consumer spends 30% of income on housing and housing is a necessity for consumers (the income elasticity for housing is 0 < ?H < 1 ). What are the maximum and minimum values for the income elasticity of all other goods, ?O?
What will be an ideal response?
The weighted income elasticities must sum to 1:
0.3?H + .7?O = 1
The maximum value ?H = 1 yields ?O = 1. The minimum value ?H = 0 yields ?O = 1.42.
Economics
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