Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
A)-0.66
B)0.5
C)1.5
D)2

Question

Quizplus · Accepted Answer

The formula for income elasticity of demand is: 
Income elasticity = percentage change in quantity demanded / percentage change in income

Substituting the values gives us: 
Income elasticity = 4% / 8% = 0.5

Therefore, the answer is B. The income elasticity is positive (so the good is a normal good), and the value is less than 1, indicating that the good is relatively income inelastic.

Calculate the Income Elasticity If an 8 Percent Increase in Income