Howard buys 5 suits a year when he earns $70,000.When his income increases to $200,000,he buys 15 suits a year.From the midpoint method,his income elasticity of demand for suits is
A) 1.04.
B) 0.96.
C) -1.04.
D) -0.96.
E) 0.08.

Question

Quizplus · Accepted Answer

The income elasticity of demand is calculated using the midpoint method as the percentage change in quantity demanded divided by the percentage change in income. Here, the change in quantity demanded is from 5 to 15 suits, and the change in income is from $70,000 to $200,000. Using the midpoint method, the income elasticity of demand is calculated as [(15 - 5) / ((15 + 5)/2)] / [($200,000 - $70,000) / (($200,000 + $70,000)/2)], which simplifies to 1.04.

Howard Buys 5 Suits a Year When He Earns $70,000