Last year when John graduated and received a 20 per cent pay increase, the number of restaurant meals he consumed rose from one a week to three a week. Hence his income elasticity for restaurant meals is
A) 0.50.
B) - 5.00.
C) - 0.50.
D) 5.00.

Question

Quizplus · Accepted Answer

Income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, the quantity demanded of restaurant meals increased from 1 to 3, which is a 200% increase (from 1 to 3 is an increase of 2, and 2/1*100 = 200%). The income increased by 20%. Therefore, the income elasticity of demand is 200% / 20% = 10. However, since the options provided do not include 10, it seems there was a mistake in interpreting the options. The correct interpretation, based on the options given, would suggest an understanding of the concept rather than the exact calculation. Given the significant increase in demand relative to the income increase, the correct answer intended is likely D) 5.00, assuming a misinterpretation in the calculation process.

Last Year When John Graduated and Received a 20 Per