If the income elasticity of demand for a good is 1.25,a 10% increase in income results in
A)a 12.5% increase in the quantity demanded.
B)a 12.5% decrease in the quantity demanded.
C)a 125% increase in the quantity demanded.
D)a decrease in quantity demanded.
E)There is not enough information to answer this question.

Question

Quizplus · Accepted Answer

If the income elasticity of demand for a good is 1.25, it means that a 1% increase in income will result in a 1.25% increase in the quantity demanded. Therefore, a 10% increase in income will result in a 1.25 x 10 = 12.5% increase in the quantity demanded. So, the correct answer is A.

If the Income Elasticity of Demand for a Good Is