The income elasticity of demand for pizza is 2. The Option E is most correct.
Income elasticity of demand measures the responsiveness of the quantity demanded for a product to changes in consumers' income levels. It helps indicate whether a good is a normal or inferior good.
The income elasticity of demand for pizza can be calculated using: ((Q2 - Q1) / Q1) / ((Y2 - Y1) / Y1) where Q1 = 5, Q2 = 3, Y1 = $10 and Y2 = $8
Income Elasticity of Demand = ((3 - 5) / 5) / (($8 - $10) / $10)
= ((-2) / 5) / ((-$2) / $10)
= (-2/5) / (-2/10)
= (-2/5) / (-1/5)
= (-2/5) * (-5/1)
= 2.
Therefore, the income elasticity of demand for pizza is 2.
The full question is:
If consumption of pizza decreased from 5 to 3 and income fell from $10 to $8. What is the income elasticity of demand for pizza?
- 3.69
- 3.82
- 2.27
- 3.34
- None of the above