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

Question

Quizplus · Accepted Answer

A positive income elasticity of demand (as in this case) means that as income increases, the quantity demanded of the good increases as well. A 10 percent increase in income would lead to a 1.25 times increase in the quantity demanded (1.25 x 10% = 12.5%). Therefore, the correct answer is C: a 12.5 percent increase in the quantity demanded.

If the Income Elasticity of Demand for a Good Is