When Fred's income was $100 per week, 10 units of good X were demanded. Now his income is $150 per week and 12 units of good X are demanded. Using the percentage change formula, the income elasticity of demand for good X equals ________.
A) 0.45
B) 0.40
C) 2.20
D) 2.50

Question

Quizplus · Accepted Answer

The income elasticity of demand is calculated using the formula: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(I2 - I1) / ((I2 + I1) / 2)]. Here, Q1 = 10, Q2 = 12, I1 = 100, I2 = 150. The calculation gives [(12 - 10) / 11] / [(150 - 100) / 125] = 0.1818 / 0.4 = 0.4545, which rounds to 0.45.

When Fred's Income Was $100 Per Week, 10 Units of Good