Question

When​ Judy's income increased from ​$400 to ​$440 a​ week, she increased her demand for concert tickets by 15 percent and decreased her demand for bus rides by 20 percent.

Calculate​ Judy's income elasticity of demand for concert tickets and bus rides.

Answer 1

The income elasticity of demand for concert tickets: 15/10 = 1.5

The income elasticity of demand for bus rides: -2

Step-by-step explanation:

The income elasticity of demand for a product can be calculated by this following formula:

+) The income elasticity of demand for a product = (% change in quantity of product demanded)/ (% change in income)

The change in Judy's income is:

%change in income = (New income - Previous income)/ Previous income *100%

= (440 - 400)/400 * 100% = 10%

% change in quantity of concert tickets: 15%

=> The income elasticity of demand for concert tickets = % change in quantity of concert tickets/ %change in income = 15/10 = 1.5

% change in quantity of bus rides: -20%

=> The income elasticity of demand for bus rides = % change in quantity of concert tickets/ %change in income = -20/10 = -2