Suppose that the value of the income elasticity of demand for a product is 2 and average incomes increase by 16%.What will happen to the quantity demanded?
A)It will increase by 8%.
B)It will increase by 32%.
C)It will decrease by 8%.
D)It will decrease by 32%.
E)It cannot be determined without further information.

Question

Quizplus · Accepted Answer

The income elasticity of demand measures the responsiveness of the quantity demanded of a product to changes in income. A positive income elasticity of demand means that as income rises, the quantity demanded of the product also increases. In this case, the income elasticity of demand is 2, which means that a 1% increase in income leads to a 2% increase in the quantity demanded of the product. 
If average incomes increase by 16%, we can expect the quantity demanded to increase by 2 x 16% = 32%. Therefore, choice B is the correct answer.

Suppose That the Value of the Income Elasticity of Demand