Table 5.7
$$\begin{array} { c c c }
& \text { Quantity } & \text { Income } \
\text { Good A } & 100 & \$ 1,000 \
& 120 & \$ 2,000 \\

\text { Good B } & 200 & \$ 20 \
& 140 & \$ 35
\end{array}$$
-Refer to Table 5.7,which shows the change in the quantity demanded for Good A and Good B as a result of a change in income.Use the information to calculate the value of the income elasticity of demand for Good A.
A)1
B)2/9
C)3/11
D)11/3
E)9/2

Question

Table 5.7
 $$\begin{array} { c c c } 
& \text { Quantity } & \text { Income } \
\text { Good A } & 100 & \$ 1,000 \
& 120 & \$ 2,000 \\

\text { Good B } & 200 & \$ 20 \
& 140 & \$ 35
\end{array}$$
-Refer to Table 5.7,which shows the change in the quantity demanded for Good A and Good B as a result of a change in income.Use the information to calculate the value of the income elasticity of demand for Good A.
A)1
B)2/9
C)3/11
D)11/3
E)9/2

Quizplus · Accepted Answer

The income elasticity of demand is calculated using the formula:
$$E_y = \frac{\%\text{ change in quantity demanded}}{\%\text{ change in income}}$$
For Good A, the quantity demanded increased by 20 units (or 20%) when income increased from $1,000 to $2,000 (or 100%). Therefore,
$$E_y = \frac{20\%}{100\%} = 0.2$$
So the income elasticity of demand for Good A is 0.2. Since this value is less than 1, it indicates that Good A is a necessity rather than a luxury. To find the closest choice, we can convert 0.2 to a fraction:
$$0.2 = \frac{2}{10} = \frac{18}{90}$$
The closest fraction in the answer choices is 3/11, which is choice C. Therefore, the answer is C.

Table 57 -Refer to Table 5