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Chapter 5: Q.21 (page 130)

What is the formula for the income elasticity of demand?

Short Answer

Expert verified

The percent change in quantity demanded divided by the percent change in income is the formula for estimating the income elasticity of demand.

Step by step solution

01

Definition

Income elasticity of demand

The sensitivity of the quantity desired for a specific good to a change in the actual income of customers who buy it is referred to as income elasticity of demand.

02

Explanation

The income elasticity of demand is computed by dividing the percent change in quantity demanded by that of the percent change in income. When demand is elastic, it means that the quantity demanded vary more than the price.

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Most popular questions from this chapter

The equation for a supply curve is 4P = Q. What is the elasticity of supply as price rises from 3 to 4? What is the elasticity of supply as the price rises from 7 to 8? Would you expect these answers to be the same?

Suppose the cross-price elasticity of apples with respect to the price of oranges is 0.4, and the price of oranges falls by 3%. What will happen to the demand for apples?

What would the gasoline price elasticity of supply mean to UPS or FedEx?

The federal government decides to require that automobile manufacturers install new anti-pollution equipment that costs $2,000 per car. Under what conditions can carmakers pass almost all of this cost along to car buyers? Under what conditions can carmakers pass very little of this cost along to car buyers?

Why is the demand curve with constant unitary elasticity concave?
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