Fred's income increases from $800 per week to $1,200 per week.As a result,he decides to purchase 40 percent more bubble gum each week.The income elasticity of Fred's demand for bubble gum is
A)0.40.
B)40.
C)1.0.
D)0.12.
E)10.

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. Here, Fred's income increases by 50% (from $800 to $1,200 is a $400 increase on $800, which is 50%), and his purchase of bubble gum increases by 40%. Thus, the income elasticity of demand = (40% / 50%) = 0.8. However, since this specific option is not available, it seems there might be a misunderstanding in the interpretation of the choices provided or a mistake in the calculation or the options given. Based on the standard calculation method, the correct calculation approach was described, but it appears there's an error in the provided options or my interpretation. The correct approach to calculate income elasticity is indeed as described, but without the correct option listed, the closest correct principle was explained.

Fred's Income Increases from $800 Per Week to $1,200 Per