If the income elasticity for lobster is 0.4,a 40 percent increase in income will lead to a:
A) 10 percent drop in demand for lobster.
B) 16 percent increase in demand for lobster.
C) 20 percent increase in demand for lobster.
D) 4 percent increase in demand for lobster.

Question

Quizplus · Accepted Answer

Income elasticity of demand measures how the quantity demanded of a good responds to a change in income, calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, with an income elasticity of 0.4 and a 40% increase in income, the demand for lobster would increase by 0.4 * 40% = 16%.

If the Income Elasticity for Lobster Is 0