Final answer:
The correct statement is D) A decrease in income will lead to a decrease in transportation expenditures.
Step-by-step explanation:
The correct statement among the options is D) A decrease in income will lead to a decrease in transportation expenditures.
Income elasticity of demand measures how sensitive the quantity demanded of a good is to a change in income. If the income elasticity for transportation is 1.8, it means that a 1% increase in income will lead to an approximately 1.8% increase in transportation expenditures. Therefore, Option A is a correct statement.
Transportation is considered a normal good when the demand for it increases as income increases. Since the income elasticity of transportation is positive (1.8), it confirms that transportation is indeed a normal good. Therefore, Option B is also a correct statement.
When the demand for a good is relatively elastic with respect to income, it means that the quantity demanded of the good is highly responsive to changes in income. Since the income elasticity for transportation is 1.8, it indicates that transportation demand is relatively elastic with respect to income. Therefore, Option C is a correct statement.
A negative income elasticity of demand indicates that the good is an inferior good. An inferior good is one that people buy less of as their income increases. Since the income elasticity for transportation is positive (1.8), it means transportation is not an inferior good. Therefore, Option D is an incorrect statement.