Income rises from $3,500 to $4,000 a month and the quantity demanded of good X falls from 7 to 5 units a month. Income elasticity of demand (for good X) is __________ and good X is a(n) __________ good. a. 0.40; normal b. 2.50; normal c. -2.28, inferior d. 0.40; normal e. -2.50;inferior

To calculate the income elasticity of demand, we can use the following formula:

Income Elasticity of Demand (YED) = % Change in Quantity Demanded / % Change in Income

First, let's calculate the percentage change in quantity demanded:

% Change in Quantity Demanded = (New Quantity - Initial Quantity) / Initial Quantity * 100 = (5 - 7) / 7 * 100 = (-2 / 7) * 100 = -28.57%

Similarly, we calculate the percentage change in income:

% Change in Income = (New Income - Initial Income) / Initial Income * 100 = ($4,000 - $3,500) / $3,500 * 100 = ($500 / $3,500) * 100 = 14.29%

Now we have both values, we can calculate YED:

YED = -28.57% / 14.29% = -2.00 (approximately)

The YED is negative, which means that as income increases, the demand for good X decreases. This is characteristic of an inferior good because for inferior goods, demand decreases as income increases.

Therefore, the closest answer given the options is (e.) -2.50; inferior, although the calculated elasticity is -2.00, not -2.50. Some rounding or different method of calculating percentages may account for this discrepancy.