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

Question

Quizplus · Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. The percentage change in quantity demanded is ((12-10)/10)*100 = 20%, and the percentage change in income is ((150-100)/100)*100 = 50%. Therefore, the income elasticity of demand is 20%/50% = 0.40.

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