Question

he income elasticity of demand for haircuts is​ 1.5, and the income elasticity of demand for food is 0.14. You take a weekend​ job, and the income you have to spend on food and haircuts doubles. If the prices of food and haircuts remain the​ same, you will​ _______. A. more than double your expenditure on haircuts and less than double your expenditure on food B. double your expenditure on haircuts and double your expenditure on food C. increase your expenditure on haircuts by 1.5 percent and increase your expenditure on food by 0.14 percent D. increase your expenditure on haircuts by 150 percent and increase your expenditure on food by 140 percent E. not change your expenditure on either food or haircuts because you​ don't need to have your hair cut more frequently and you already have enough to

Answer 1

The correct answer is option A.

Step-by-step explanation:

Income elasticity of demand can be defined as the measure of the responsiveness of demand to increase in the income of the consumer.

It is measured by the ratio of change in quantity demanded to change in income.

The income elasticity of demand of haircuts as 1.5 means that when income is doubled or increases by 100%, the demand for haircuts increase by 150%.

While, 0.14 income elasticity for food means that when income is increased by 100%, the demand for food increases by 14%.

So, the expenditure on haircuts increases more than double while that on food increases less than double.