Suppose the income elasticity of demand for laser eye (lasik) surgery is -0.3. In this case, lasik surgery is __________ [a normal, an inferior] good because the quantity demanded __________ [increases, stays the same, decreases] when income increases. [This is a multiple-answer question. Check one answer in each of the two groups.]

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BlackTom AI · Accepted Answer

Question restatement: The problem gives an income elasticity of demand for laser eye surgery (Lasik) of -0.3 and asks you to fill two blanks: (1) whether Lasik is a normal or inferior good, and (2) how quantity demanded changes when income rises. Answer choices are provided for each blank as two separate groups.

Group 1 options analysis (normal vs inferior):
- Normal: This option would imply that the good has a positive income elasticity, meaning quantity demanded rises as income increases. Since the given elasticity is negative (-0.3), this would contradict the data. Therefore, selecting 'normal' would be incorrect because a positive relationship with income does not match the observed negative elasticity.
- Inferior: An inferior good is characterized by a negative income elasticity, so when income rises, quantity demanded falls. The given elasticity of -0.3 fits this category, making this option consistent with the data.

Group 2 options analysis (increases vs stays the same vs decreases):
- Increases: This would be true for a normal good with a positive elasticity. With a negative elasticity (-0.3), the quantity demanded would not rise as income increases, so this option is inconsistent with the data.
- Stays the same: A zero elasticity would imply no change in quantity demanded with income. That is not compatible with a negative elasticity of -0.3, which indicates a clear downward response to higher income.
- Decreases: A negative income elasticity means quantity demanded falls when income rises. Therefore, this option correctly mirrors the expected behavior under -0.3 elasticity.

Putting the pieces together, the first blank should reflect that the good is inferior, and the second blank should reflect that quantity demanded decreases as income increases. The reasoning aligns with standard interpretations of income elasticity values: negative elasticity signifies inferior goods, and the quantity demanded moves inversely with income.

Note on potential misconceptions:
- Some students might confuse elasticity signs with the direction of the income effect; remember that the sign of the elasticity directly indicates the direction of the quantity change with income.
- Another pitfall is assuming all goods respond the same way to income; only those with negative elasticity behave as inferior goods with decreasing quantity as income grows.
- If you accidentally choose 'normal' for the first blank or 'increases' for the second, you’d be contradicting the given elasticity value and the fundamental relation between income and quantity for that category of goods.

In summary, the correct pairing is that Lasik is an inferior good and its quantity demanded decreases when income increases, which matches the provided negative elasticity of -0.3.

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