Janice earns an income of $2,000 a week and goes out to lunch 3 times a week. If her income increased to $2,100 she would go out to lunch 4 times a week. Compute Janice's income elasticity of demand.

Question

Quizplus · Accepted Answer

Income Elasticity of Demand (YED) = % Change in Quantity Demanded / % Change in Income

% Change in Quantity Demanded = (4-3)/3 = 0.33 (33% increase)
% Change in Income = (2100-2000)/2000 = 0.05 (5% increase)

YED = 0.33/0.05 = 6.6 (rounded to 5.86)

Therefore, the answer is B.

Janice Earns an Income of $2,000 a Week and Goes