If Cassandra bought 12 blouses last year when her income was $46,000 and she buys 14 blouses this year when her income is $52,000, then her income elasticity of demand for blouses is approximately
A)-1.26.
B)+1.26.
C)-0.80.
D)+0.80.
E)-2.52.

Question

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 change in quantity demanded is from 12 to 14 blouses, which is an increase of 2 blouses on the original 12, or a 16.67% increase. The change in income is from $46,000 to $52,000, which is an increase of $6,000 on the original $46,000, or a 13.04% increase. Thus, the income elasticity of demand = (16.67% / 13.04%) = approximately +1.26, indicating that blouses are a normal good (positive income elasticity) and that the demand for blouses increases by approximately 1.26% for every 1% increase in income.

If Cassandra Bought 12 Blouses Last Year When Her Income