If the income elasticity of demand for lobster is +1.5, a 5 percent increase in income will cause a 7.5 percent increase in the demand for lobster.

Question

Quizplus · Accepted Answer

This is true. A positive income elasticity of demand means that as income increases, the demand for the good also increases. The size of the increase in demand is given by the income elasticity coefficient. In this case, a 5 percent increase in income would lead to a 7.5 percent increase in the demand for lobster, which corresponds to an income elasticity coefficient of 1.5.

If the Income Elasticity of Demand for Lobster Is +1