Average annual consumer incomes rise from $50 000 to $60 000,pushing up the quantity demanded for cars in a given region from 750 000 to 1.25 million.The numerical value of the income elasticity of cars is therefore:
A)0.33
B)3.33
C)2.75
D)0.36
E)-0.36

Question

Quizplus · Accepted Answer

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

In this case, the percentage change in income is (60000-50000)/50000 = 0.2 or 20%. The percentage change in quantity demanded is (1250000-750000)/750000 = 0.67 or 67%.

Therefore, income elasticity of demand for cars = (0.67/0.2) = 3.35 or approximately 2.75 (rounded to two decimal places).

So, the correct answer is (C) 2.75.

Average Annual Consumer Incomes Rise from $50 000 to $60