You are the owner of a boutique clothing store and estimate the price elasticity of demand for your clothing to be 2.50 and the income elasticity of demand for your clothing to be 1.55. An upcoming economic expansion is expected to increase consumer incomes by 5 percent. As a result of the economic expansion, which of the following should you expect to occur?
A)The demand for your clothing to increase by 7.75 percent.
B)The demand for your clothing to decrease by 12.5 percent.
C)The demand for your clothing to increase by 12.5 percent.
D)The demand for your clothing to decrease by 7.75 percent.

Question

Quizplus · Accepted Answer

The income elasticity of demand is 1.55, and consumer incomes are expected to increase by 5 percent. The expected increase in demand can be calculated as 1.55 * 5% = 7.75%. This means the demand for your clothing is expected to increase by 7.75 percent.

You Are the Owner of a Boutique Clothing Store and Estimate