Ernest's income elasticity of demand for natural gas is 0.4. His price elasticity of demand for natural gas is -0.3, and he spends 10% of his income on natural gas. What is his substitution price elasticity?

Question

Quizplus · Accepted Answer

The substitution price elasticity can be calculated using the formula: substitution elasticity = price elasticity - (income elasticity * budget share). Substituting the given values: -0.3 - (0.4 * 0.1) = -0.3 - 0.04 = -0.34.

Ernest's Income Elasticity of Demand for Natural Gas Is 0