For U.S. consumers, the income elasticity of demand for fruit juice is 1.1. If the economy enters a recession next year and consumer income declines by 2.5%, what is the expected change in the quantity of fruit juice demanded next year?
A) -2.75%
B) +2.75%
C) -27.5%
D) +27.5%

Question

Quizplus · Accepted Answer

The income elasticity of demand formula is % change in quantity demanded / % change in income. Given an elasticity of 1.1 and a -2.5% change in income, the expected change in quantity demanded is 1.1 * (-2.5%) = -2.75%.

For US Consumers, the Income Elasticity of Demand for Fruit Juice