The income elasticity of demand for vacations is 5. If incomes increase by 3 percent next year, the quantity of vacations demanded at today's price will increase by ________ percent.
A) 3
B) 5/3
C) 15
D) 5

Question

Quizplus · Accepted Answer

Income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. With an elasticity of 5 and a 3% increase in income, the quantity demanded will increase by 5 * 3% = 15%.

The Income Elasticity of Demand for Vacations Is 5