If the income elasticity of demand for some good is 2.4,a 10% increase in income results in
A)a 24% increase in the quantity demanded.
B)a 240% increase in the quantity demanded.
C)a 24% decrease in quantity demanded.
D)a 2.4% increase in the quantity demanded.
E)a 240% decrease in quantity demanded.

Question

Quizplus · Accepted Answer

The income elasticity of demand measures the responsiveness of quantity demanded to changes in income. A positive income elasticity indicates a normal good.

If the income elasticity of demand for a good is 2.4, this means that a 1% increase in income would result in a 2.4% increase in the quantity demanded.

If there is a 10% increase in income, then we can calculate the change in quantity demanded using the following formula:

% Change in Quantity Demanded = Income Elasticity of Demand x % Change in Income

% Change in Quantity Demanded = 2.4 x 10% = 24%

Therefore, a 10% increase in income would result in a 24% increase in the quantity demanded, so the answer is choice A.

If the Income Elasticity of Demand for Some Good Is