Charlie's income went from $1000 per week to $1500 per week. As a result he increased his consumption of beef from 1 pound a week to 3 pounds a week. Based on his consumption patterns, the income elasticity of beef for Charlie is

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. Here, Charlie's income increased by 50% (from $1000 to $1500), and his consumption of beef increased from 1 pound to 3 pounds, which is a 200% increase. The income elasticity of demand = (200% / 50%) = 4. However, the correct calculation should consider the formula: [(Q2 - Q1) / (Q2 + Q1) / 2] / [(I2 - I1) / (I2 + I1) / 2], where Q1 and Q2 are the initial and final quantities, and I1 and I2 are the initial and final incomes. Applying the correct values: [(3 - 1) / (3 + 1) / 2] / [($1500 - $1000) / ($1500 + $1000) / 2] = 2 / 0.5 = 4. The provided choices do not include the correct answer based on the correct calculation, indicating a mistake in my explanation regarding the available options. The correct approach to find the elasticity using the given options would involve recognizing the mistake in calculation: The income elasticity of demand = (Change in quantity / Average quantity) / (Change in income / Average income). Given the error in the initial explanation, the correct calculation aligns with an elasticity that shows how much the quantity demanded of beef changes in response to a change in income, which should reflect a positive and proportional relationship, suggesting a calculation error in the initial response.

Charlie's Income Went from $1000 Per Week to $1500 Per