Suppose a consumer's income increases from $30,000 to $36,000.As a result,the consumer increases her purchases of compact disks (CDs)from 25 CDs to 30 CDs.What is the consumer's income elasticity of demand for CDs?
A)0.5
B)1.0
C)1.5
D)2.0

Question

Quizplus · Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. The percentage change in quantity is (30-25)/25 = 0.2 or 20%, and the percentage change in income is (36000-30000)/30000 = 0.2 or 20%. Therefore, the income elasticity is 0.2/0.2 = 1.0.

Suppose a Consumer's Income Increases from $30,000 to $36,000