The income elasticity of demand for food is roughly 1. A consumer's monthly income is $2,000, of which 20 percent is spent on food. If the income of this consumer doubles, the amount she'll spend on food will be
A) $400 per month.
B) $500 per month.
C) $800 per month.
D) $1,000 per month.

Question

Quizplus · Accepted Answer

First, we need to calculate the current amount spent on food:

$2,000 x 0.20 = $400

Since the income elasticity of demand for food is roughly 1, we know that if the consumer's income doubles, the amount spent on food will also double.

So, if the consumer's income is now $4,000, they will spend:

$4,000 x 0.20 = $800

Therefore, the answer is C) $800 per month.

The Income Elasticity of Demand for Food Is Roughly 1