Chad's income went from $1000 per week to $1500 per week. As a result he increased his consumption of steak from 1 pound a week to 3 pounds a week. Based on his consumption patterns, the income elasticity of steak for Chad is

Question

Quizplus · Accepted Answer

The formula for income elasticity is:

% change in quantity demanded of the good / % change in income

We can use the information given in the problem to calculate this:

% change in quantity demanded = (3 - 1) / 1 * 100% = 200%
% change in income = (1500 - 1000) / 1000 * 100% = 50%

Using these values in the formula, we get:

Income elasticity = 200% / 50% = 4

Since the result is greater than 1, we know that steak is a luxury good for Chad. However, the answer choices don't include 4, so we need to choose the closest option, which is A, 2.50.

Chad's Income Went from $1000 Per Week to $1500 Per