Suppose Joe purchases 10 lottery tickets per month when his monthly income is $200. Joe receives a raise at work, giving him an extra $40 per month in take-home pay, and Joe now purchases 15 lottery tickets per month. What is Joe's income elasticity of demand for lottery tickets?
A) 2.5
B) 1.
C) 0.4.
D) 0.25.

Question

Suppose Joe purchases 10 lottery tickets per month when his monthly income is $200. Joe receives a raise at work, giving him an extra $40 per month in take-home pay, and Joe now purchases 15 lottery tickets per month. What is Joe's income elasticity of demand for lottery tickets?
A)	2.5
B)	1.
C) 0.4.
D) 0.25.

Quizplus · Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, the quantity demanded of lottery tickets increases from 10 to 15, which is a 50% increase ([15-10]/10 = 0.5 or 50%). Joe's income increases from $200 to $240, a 20% increase ([240-200]/200 = 0.2 or 20%). Therefore, the income elasticity of demand is 50%/20% = 2.5.

Suppose Joe Purchases 10 Lottery Tickets Per Month When His