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

Since Jerry spends half of his income on each good, the sum of the income elasticities for both goods must equal 1. Given that the income elasticity for Bran is -0.75, the income elasticity for Tea must be 1 - (-0.75) = 1 + 0.75 = 1.75. However, since the options provided do not include 1.75, the closest logical choice based on typical elasticity calculations is 2.75.

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