When Logan earned $1,000 per week, he purchased 5 karate lessons and 40 gallons of gasoline. When his earnings increased to $1,100 per week, he purchased 6 karate lessons and 43 gallons of gasoline. The income elasticity of karate lessons and gasoline are _____ and _____, respectively.

Question

Quizplus · Accepted Answer

The income elasticity of demand (YED) measures how the quantity demanded of a good responds to a change in income, calculated as the percentage change in quantity demanded divided by the percentage change in income. For karate lessons, the change from 5 to 6 lessons represents a 20% increase, and the income change from $1,000 to $1,100 is a 10% increase, giving a YED of 2.00 (20%/10%). For gasoline, the change from 40 to 43 gallons is a 7.5% increase, with the same 10% income increase, resulting in a YED of 0.75 (7.5%/10%).

When Logan Earned $1,000 Per Week, He Purchased 5 Karate