Question

Attina always spends 20 % of her income on snarfblatts. Assume that her income increases by some percentage while the price of snarfblatts remains constant (and that all snarfblatts cost the same). What is her income elasticity of demand for snarfblatts?

Answer 1

Income elasticity of demand for snarfblatts is 1.

Step-by-step explanation:

the consumer spends 20% of the income on snarfblatts, thus the percentage change in consumption of the snaerblatts is equal to the percentage in income, that is:

Elasticity = % change in demand of snarfblatts/% change in income

= 1

Therefore, Income elasticity of demand for snarfblatts is 1.