Question

When income is ​$100 per​ week, 10 gallons of gas is demanded. When income is ​$140 per​ week, 15 gallons of gas is demanded. The income elasticity of demand for gallons of gas ​equals:

Answer 1

1.25

Step-by-step explanation:

The income elasticity if demand measures how responsive demand is to a change in income. It can be obtained by dividing the percentage change in quantity demanded by the percentage change in income.

In this question, the % change in quantity demanded is 50%. This is because there is a change of exactly half.

The percentage change in income is 40%. There is a rise from 100 to 140

The income elasticity is thus equals 50%/40% = 1.25