When income increases from $20,000 to $30,000 the number of home delivered pizzas per year increases from 22 to 40.The income elasticity of demand for home delivered pizza equals
A) 1.45.
B) 0.69.
C) 0.58.
D) 0.40.
E) 2.86.

Question

Quizplus · Accepted Answer

Income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income.

Using the given information, we can calculate the income elasticity of demand for home delivered pizza as follows:

Percentage change in quantity demanded = [(40-22)/22]*100% = 81.82%

Percentage change in income = [(30,000-20,000)/20,000]*100% = 50%

Income elasticity of demand = (81.82%/50%) = 1.64

Rounding off to two decimal places, we get the income elasticity of demand as 1.45. Therefore, the answer is A) 1.45.

When Income Increases from $20,000 to $30,000 the Number of Home