A 10 percent increase in income increases the quantity of orange juice demanded from 19,200 to 20,800 gallons. The income elasticity of demand for orange juice is
A) 0.5.
B) 0.8.
C) 1.0.
D) 1.2.

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 demanded is ((20,800 - 19,200) / 19,200) * 100 = 8.33%. The percentage change in income is 10%. Therefore, the income elasticity of demand is 8.33% / 10% = 0.833, which is approximately 0.8.

A 10 Percent Increase in Income Increases the Quantity of Orange