A study of consumers in an area found that as family income increased from $25,000 per year to $35, 000 per year, other factors held constant, the number of houses purchased increased from 7,000 per year to 11,000 per year. This finding indicates an income elasticity of demand coefficient for housing over this family income range of:
A) 0.22.
B) 0.75.
C) 1.33.
D) 4.50.

Question

Quizplus · Accepted Answer

Income elasticity of demand for housing = [(Q2-Q1) / ((Q2+Q1)/2)] / [(I2-I1) / ((I2+I1)/2)]
where Q1 = 7000, Q2 = 11000, I1 = 25000, I2 = 35000
Substituting the values in the formula, we get:
Income elasticity of demand for housing = [(11000-7000) / ((11000+7000)/2)] / [(35000-25000) / ((35000+25000)/2)]
= (0.50 / 1.30) x 100 = 1.33
Therefore, the answer is C, which represents an income elasticity of demand coefficient of 1.33.

A Study of Consumers in an Area Found That as Family