Jerry spends his entire income on two goods,Bran and Tea.Every month he spends half of his income on each of these goods.Jerry's income elasticity of demand for Bran is .75.What is the income elasticity of demand for Tea?

Question

Quizplus · Accepted Answer

The income elasticity of demand for Tea is 1.25 because Jerry spends half of his income on each good, and his income elasticity of demand for Bran is .75. This means that if Jerry's income increases by 1%, his demand for Tea will increase by 1.25%.

Jerry Spends His Entire Income on Two Goods,Bran and Tea