Suppose the income elasticity of demand for a private college education is equal to 1.5.This means that
A)every $1 increase in income provides an incentive for a $1.50 increase in expenditures on private college education
B)every $1.50 increase in income provides an incentive for a $1 increase in expenditures on private college education
C)a 10 percent increase in income causes a 15 percent increase in the demand for a private college education
D)a 15 percent increase in income causes a 10 percent increase in the demand for a private college education
E)a 10 percent decrease in private college tuition will have a large enough income effect to increase spending on private college education by 15 percent

Question

Quizplus · Accepted Answer

Income elasticity of demand measures the responsiveness of quantity demanded to changes in income, given that all other factors influencing demand remain constant. An income elasticity of demand of 1.5 means that a 10 percent increase in income (which is represented by a dollar increase here) causes a 15 percent increase in the demand for a private college education. Therefore, choice C is the correct answer.

Suppose the Income Elasticity of Demand for a Private College