Question

When Tim earned​ $65,000 he purchased 10 novels a year. His income has just increased to​ $68,000 and he plans to purchase 15 novels this year.​ Tim's income elasticity of demand for novels equals

Answer 1

8.88

Step-by-step explanation:

Data provided in the question:

Initial income, I₁ = $65,000

Initial novel purchased, D₁ = 10

Final income, I₂ = $68,000

Final novel purchased, D₂ = 15

Now,

Tim's income elasticity of demand for novels will be

=
`(((D_2-D_1)/(D_1+D_2)))/(((I_2-I_1)/(I_1+I_2)))`

on substituting the respective values, we get

=
`(((15-10)/(10+15)))/(((68,000-65,000)/(65,000+68,000)))`

= [5 ÷ 25] ÷ [3,000 ÷ 133,000 ]

= 0.2 ÷ 0.0225

= 8.88