Suppose that as my income allocated to sweets increases from

Suppose that as my income allocated to sweets increases from $100 to $ 250, my consumption of ice cream falls from 20 ice cream cones to 5 ice cream cones. What is my income elasticity of demand for ice cream cones at the price of $ 250 Are ice cream cones inferior goods, necessities, or luxuries

Solution

a. Income elasticity = (Income/quantity)*(change in demand/change in income)

250/5*15/100 = 7.5

b. Ice cream cones are luxuries as income elasticity is more than one.