Given his current income, Rico's demand for bagels is related to the price of bagels by the equation Q = 520 - 12P. Rico's income elasticity of demand for bagels is known to be equal to 0.5 at all prices and incomes. If Rico's income quadruples, his demand for bagels will be related to the price of bagels by the equation

Question

Quizplus · Accepted Answer

Since the income elasticity of demand is constant at 0.5 at all prices and incomes, we can use the following formula to find the new quantity demanded after Rico's income quadruples:

Q2 = Q1 x (Y2/Y1)^e

Where Q1 is the initial quantity demanded, Y1 is the initial income, e is the income elasticity of demand, Y2 is the new income, and Q2 is the new quantity demanded.

Plugging in the values, we get: 
Q2 = (520 - 12P) x (4/1)^0.5
Q2 = (520 - 12P) x 2
Q2 = 1,040 - 24P

Therefore, the new equation for Rico's demand for bagels after his income quadruples is Q = 1,040 - 24P. So, the correct answer is B.

Given His Current Income, Rico's Demand for Bagels Is Related