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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? Group of answer choices

User Zarat
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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
User Rohit Jakhar
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8.4k points

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