If income rises by 20% and the quantity demanded of an item rises by 10%, the income elasticity of demand for this item is:
A)2.
B)-2.
C)0.5.
D)-0.5.

Question

Quizplus · Accepted Answer

Income Elasticity of Demand = % change in Quantity Demanded / % change in Income
Given, % change in Income = +20%
% change in Quantity Demanded = +10%
Substituting the values in the formula:
Income Elasticity of Demand = 10/20 = 0.5
Therefore, the income elasticity of demand for the item is 0.5, which means that the item is a normal good with a relatively inelastic demand.

If Income Rises by 20% and the Quantity Demanded of an Item