Assume that All's income increased by 25% and his consumption of milk increases by 50% Which of the following statements is true? A. Income elasticity is equal to 0.5 and milk is a normal good. B. Income elasticity is equal to 0.5 and milk is an inferior good. C. Income elasticity is equal to 2 and milk is a normal good. D. Income elasticity is equal to 2 and milk is an inferior good.

To determine the correct statement, we need to calculate the income elasticity of demand for milk using the given information.<br /><br />Income elasticity of demand is calculated using the formula:<br /><br />\[ \text{Income Elasticity of Demand} = \frac{\text{Percentage Change in Quantity Demanded}}{\text{Percentage Change in Income}} \]<br /><br />Given:<br />- All's income increased by \(25\%\) (0.25).<br />- His consumption of milk increased by \(50\%\) (0.50).<br /><br />Plugging these values into the formula:<br /><br />\[ \text{Income Elasticity of Demand} = \frac{0.50}{0.25} = 2 \]<br /><br />Now, let's interpret the elasticity value:<br />- If the elasticity is greater than 1, the good is a normal good.<br />- If the elasticity is less than 1, the good is an inferior good.<br /><br />Since the calculated elasticity is 2, which is greater than 1, milk is a normal good.<br /><br />Therefore, the correct statement is:<br /><br />C. Income elasticity is equal to 2 and milk is a normal good.