Final answer:
A 10% increase in regular customers’ incomes with an income elasticity of demand for coffee of 0.5 would lead to a 5% increase in coffee sales.
Step-by-step explanation:
If the income elasticity of demand for coffee at a local Starbucks was 0.5, then a 10% increase in regular customers’ incomes would be expected to result in a 5% increase in coffee sales.
Income elasticity of demand measures how the quantity demanded of a good responds to a change in income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income. In this case, with an elasticity of 0.5, the quantity demanded for coffee would increase by half the percentage of the increase in income. Therefore, for a 10% increase in income, we would expect a 5% increase in quantity demanded, that is:
Elasticity (0.5) x Income Increase (10%) = Quantity Increase (5%).
The correct answer to the student's question is option b - 5% increase in coffee sales.