A study of consumers in an area found that as family income increased from $25 000 per year to $35 000 per year and other factors held constant, the number of houses purchased increased from 7000 per year to 11 000 per year. This finding indicates an income elasticity of demand coefficient for housing over this family income range of:
A) 0.22.
B) 0.75.
C) 1.33.
D) 4.50.

Question

Quizplus · Accepted Answer

To calculate the income elasticity of demand coefficient, we use the following formula:
% change in quantity demanded / % change in income
Using the given values, we get:
% change in quantity demanded = (11,000-7,000) / 7,000 = 0.57 or 57%
% change in income = (35,000-25,000) / 25,000 = 0.4 or 40%
Income elasticity of demand coefficient = 0.57 / 0.4 = 1.33
Therefore, the answer is C.

A Study of Consumers in an Area Found That as Family