A consumer's weekly income is $300, and the consumer buys 5 bars of chocolate per week. When income increases to $330, the consumer buys 6 bars per week. The income elasticity of demand for chocolate by this consumer is about
A) 0.
B) 0.5.
C) 1.
D) 2.

Question

Quizplus · Accepted Answer

Income elasticity of demand (E) is calculated as the percentage change in quantity demanded divided by the percentage change in income.

E = (%ΔQ / %ΔI)

Here, when income increases from $300 to $330, the percentage change in income is:

%ΔI = [(330-300) / 300] x 100% = 10%

And the percentage change in quantity demanded is:

%ΔQ = [(6- 5) / 5] x 100% = 20%

So,

E = (%ΔQ / %ΔI) = 20% / 10% = 2

Therefore, the income elasticity of demand for chocolate by this consumer is 2, which means that the consumer is relatively responsive to changes in income, and demand for chocolate is income elastic.

A Consumer's Weekly Income Is $300, and the Consumer Buys