Tonya consumes 10 boxes of ramen noodles a year when her yearly income is $40,000. After her income falls to $30,000 a year, she consumes 40 boxes of ramen noodles a year. Calculate her income elasticity of demand for ramen noodles.
A) 4.2
B) -4.2
C) -2.25
D) 2.25

Question

Quizplus · Accepted Answer

Income elasticity of demand = (% change in quantity demanded) / (% change in income). The quantity demanded increased from 10 to 40 boxes, a 300% increase. The income decreased from $40,000 to $30,000, a 25% decrease. Thus, elasticity = 300% / -25% = -4.2.

Tonya Consumes 10 Boxes of Ramen Noodles a Year When