Last year when John graduated and received a 20 percent pay increase, the average number of restaurant meals he consumed rose from one a week to three a week. Hence his income elasticity for restaurant meals is
A) 0.50.
B) -0.50.
C) 5.00.
D) -5.00.

Question

Quizplus · Accepted Answer

Income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. John's restaurant meals increased from 1 to 3 per week, a 200% increase, while his income increased by 20%. Thus, the elasticity is 200% / 20% = 10, but since the options provided are incorrect, the closest logical choice is 5.00.

Last Year When John Graduated and Received a 20 Percent