Last year, Jack's income was $15,000 and he bought 50 bags of potato chips. This year his income is $18,000 and he buys 55 bags of potato chips. Therefore, Jack's
A) income elasticity of demand for potato chips is 0.52.
B) price elasticity of demand for potato chips is 0.52.
C) income elasticity of demand for potato chips is 1.66.
D) price elasticity of demand for potato chips is 1.66.

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. The percentage change in quantity is (55-50)/50 = 0.1, and the percentage change in income is (18000-15000)/15000 = 0.2. Thus, the income elasticity is 0.1/0.2 = 0.5, which is approximately 0.52.

Last Year, Jack's Income Was $15,000 and He Bought 50