Suppose you manage a Seven Eleven and are in charge of ordering products, while the home office sets the prices. In your area, the income elasticity of demand for beef jerky is -0.5. Because of local factory closings, you expect local incomes to decrease by 20% on average in the next month. As a result, you should stock _____ beef jerky.
A)20% less
B)5% more
C)10% more
D)10% less

Question

Quizplus · Accepted Answer

The income elasticity of demand for beef jerky is -0.5, which means that a 1% decrease in income leads to a 0.5% increase in demand for beef jerky. Therefore, a 20% decrease in income would lead to a 10% increase in demand (20% x 0.5 = 10%). To meet the increased demand, the manager should stock 10% more beef jerky.

Suppose You Manage a Seven Eleven and Are in Charge