Question

When yara’s income decreased from lbp (lebanese pound) 120,000 to lbp 85,000 a week, she increased her demand for falafel sandwiches by 30 percent and decreased her demand for new clothes 20 percent. calculate yara’s income elasticity of demand for(a) falafel sandwiches and (b) new clothes

Answer 1

To calculate Yara's income elasticity of demand for falafel sandwiches and new clothes, we need to calculate the percentage change in quantity demanded and income. The income elasticity of demand for falafel sandwiches is 1.03, and for new clothes, it is 0.68.

Step-by-step explanation:

To calculate Yara’s income elasticity of demand for falafel sandwiches, we need to use the formula: Income Elasticity of Demand = (% change in quantity demanded) / (% change in income).

First, we need to calculate the % change in quantity demanded for falafel sandwiches. Yara’s demand for falafel sandwiches increased by 30% (from 100% to 130%). Therefore, the % change in quantity demanded for falafel sandwiches is 30%.

Next, we need to calculate the % change in income. Yara’s income decreased from LBP 120,000 to LBP 85,000, which is a decrease of (120,000 - 85,000) / 120,000 = 0.2917 or 29.17%.

Now, we can calculate the income elasticity of demand for falafel sandwiches: Income Elasticity of Demand = 30% / 29.17% = 1.03.

For new clothes, we follow the same steps. Yara’s demand for new clothes decreased by 20% (from 100% to 80%), and her income decreased by 29.17%.

The income elasticity of demand for new clothes is: Income Elasticity of Demand = 20% / 29.17% = 0.68.