Question

If it is known that the income elasticity of demand for the same good is 2.5, estimate the percentage change in demand if consumer income increases from $100 to $300.

Answer 1

500%

Step-by-step explanation:

Given that,

Income elasticity of demand = 2.5

Consumer income increases from $100 to $300,

Therefore, percentage change in consumer income:

= [($300 - $100) ÷ $100] × 100

= [$200 ÷ $100] × 100

= 200%

Income elasticity of demand = (% change in Quantity demanded) ÷ (% change in income)

2.5 = (% change in Quantity demanded) ÷ 200%

Hence,

% change in Quantity demanded = 2.5 × 200%

= 500%