The income elasticity of demand for food is roughly 1. Suppose a consumer's monthly income is $2,000, of which 20 percent is spent on food. If the income of this consumer doubles, the amount she'll spend on food will be
A)$400 per month.
B)$500 per month.
C)$800 per month.
D)$1,000 per month.

Question

Quizplus · Accepted Answer

Since the income elasticity of demand for food is roughly 1, when the consumer's income doubles from $2,000 to $4,000, the proportion of income spent on food remains the same at 20%. Therefore, 20% of $4,000 is $800.

The Income Elasticity of Demand for Food Is Roughly 1