Given his current income, Rico's demand for bagels is related to the price of bagels by the equation Q = 520 - 12P.Rico's income elasticity of demand for bagels is known to be equal to 0.5 at all prices and incomes.If Rico's income quadruples, his demand for bagels will be related to the price of bagels by the equation
A)Q = 520 - 24P.
B)Q = 1,040 - 24P.
C)Q = 2,080 - 48P.
D)Q = 520 - 12P.
E)Q = 1,040 - 12P.

Question

Quizplus · Accepted Answer

If Rico's income quadruples, his demand for bagels will be related to the price of bagels by the equation Q = 1,040 - 24P. This is because the income elasticity of demand for bagels is known to be equal to 0.5 at all prices and incomes. This means that a 1% increase in income will lead to a 0.5% increase in the quantity of bagels demanded. Therefore, if Rico's income quadruples, his demand for bagels will increase by 200%.

Given His Current Income, Rico's Demand for Bagels Is Related