If an individual's income rises 40 percent and his clothing purchases increase 50 percent in response, the income elasticity for clothing by the individual is

Question

Quizplus · Accepted Answer

The income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in income. It is calculated as the percentage change in the quantity demanded divided by the percentage change in income.

In this case, the individual's income rises by 40 percent and his clothing purchases increase by 50 percent in response. Therefore, the income elasticity of clothing for the individual is:

Income elasticity of clothing = (Percentage change in quantity demanded)/(Percentage change in income)
= 50%/40% 
= 1.25

Since the income elasticity of clothing is positive and greater than 1, we can conclude that clothing is a normal good and that it is income elastic for the individual, meaning that the percentage increase in quantity demanded exceeds the percentage increase in income.

If an Individual's Income Rises 40 Percent and His Clothing