An income elasticity of demand for milk of 0.1 could mean that:
A)as income rises by 10 percent, quantity demanded rises by 1 percent.
B)as income rises by 100 percent, quantity demanded rises by 1 percent.
C)as income rises by 20 percent, quantity demanded rises by 10 percent.
D)as income rises by 50 percent, quantity demanded rises by 25 percent.

Question

Quizplus · Accepted Answer

An income elasticity of demand of 0.1 indicates that a 10% increase in income would result in a 1% increase in the quantity demanded of milk. Therefore, choice A is the correct answer. Choice B is incorrect because it assumes that if income increases by 100%, the quantity demanded would increase by only 1%, which is not in line with the income elasticity of demand of 0.1. Choice C is also incorrect because it implies that a 20% increase in income would lead to a 10% increase in the quantity demanded, which is not consistent with the elasticity of demand. Finally, Choice D assumes that a 50% increase in income would result in a 25% increase in the quantity demanded of milk which is not in line with the elasticity of demand of 0.1. An income elasticity of demand of 0.1 indicates that for a 1% increase in income, the quantity demanded of milk will increase by 0.1%. Therefore, as income rises by 10%, quantity demanded will rise by 1%.

An Income Elasticity of Demand for Milk of 0