Question

When a couple has a monthly income of 4.000 tl, they would usually consume 10 kg of apple. now that the couple makes 6.000 tl a month, they consume 8 kg of apple. compute, by defining the formula, the couple’s income elasticity of demand for apple.

Compute, by defining the formula, the couple's income elasticity of demand for apple.

Answer 1

The couple's income elasticity of demand for apples is -0.2, indicating that apple is an inferior good as the increase in income leads to a decrease in demand for apples.

Step-by-step explanation:

The formula for calculating income elasticity of demand is the percentage change in quantity demanded divided by the percentage change in income.

Using the given information, we can calculate the income elasticity of demand for apples by substituting the values into the formula:

Income elasticity of demand = ((new demand - old demand) / old demand) / ((new income - old income) / old income)

Substituting the values: Income elasticity of demand = ((8 - 10) / 10) / ((6,000 - 4,000) / 4,000) = (-2 / 10) / (2,000 / 4,000) = -0.2

Therefore, the couple's income elasticity of demand for apples is -0.2, indicating that apple is an inferior good as the increase in income leads to a decrease in demand for apples.