7. We know from the information given, that Cheryl's income elasticity is not only negative but strongly so, at -2.5; meaning, this is a very inferior good for her. As her income increases, her expenditures for this good will decrease at a rate 2.5 times greater in percentage terms.

Specifically, we know that = -2.5 or %Q = -2.5 x %I (where I is income).

Cheryl's income rose from $100,000 to $110,000; an increase of 10%. From the formula above, we know that this means her consumption of good A will fall by 25%; in other words, it will be only 0.75 times (3/4) her purchases before her income increase. Since she was originally consuming 100 units of A, she will now purchase 100 x 0.75 = 75 units.

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