Question

When income increases from $2800 to $3600 per month, quantity demanded of Good G decreases from 1,200 units to 800 units. What is the income elasticity of demand for Good G?

Answer 1

The income elasticity of demand for Good G is 1.17

Step-by-step explanation:

Income elasticity of demand = % change in quantity demanded ÷ % change in income

% change in quantity demanded = (1200-800)/1200 × 100 = 400/1200 × 100 = 33.33%

% change in income = (3600-2800)/2800 × 100 = 800/2800 × 100 = 28.57%

Income elasticity of demand for Good G = 33.33% ÷ 28.57% = 1.17