The market demand for wheat is Q = 100 - 2p + 1pb + 2Y. If the price of wheat, p, is $2, and the price of barley, pb, is $3, and income, Y, is $1000, the income elasticity of wheat is
A)2 ∗ (1000/2099).
B)2.
C)1/2 ∗ (1000/2099).
D)Cannot be calculated from the information provided.

Question

Quizplus · Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Given the demand function Q = 100 - 2p + 1pb + 2Y, and substituting the given values (p = $2, pb = $3, Y = $1000), we first calculate the quantity demanded. Substituting the values into the demand equation gives Q = 100 - 2(2) + 1(3) + 2(1000) = 2099. The coefficient of Y in the demand equation (2) represents the change in quantity demanded for a one unit change in income, which is the numerator for the income elasticity formula. The denominator is the initial level of income ($1000). Therefore, the income elasticity of wheat is 2 * (1000/2099).

The Market Demand for Wheat Is Q = 100 -