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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 supply of paintings by Leonardo Da Vinci, who painted the Mona Lisa and The Last Supper and died in 1519, is highly inelastic. Sketch a supply and demand diagram, paying attention to the appropriate elasticities, to illustrate that demand for these paintings will determine the price.

If supply is elastic, will shifts in demand have a larger effect on equilibrium quantity or on price?

From the data in Table 5.5 about the demand for smartphones, calculate the price elasticity of demand from point B to point C, point D to point E, and point G to point H. Classify the elasticity at each point as elastic, inelastic, or unit elastic.

In a market where the supply curve is perfectly inelastic, how does an excise tax affect the price paid by consumers and the quantity bought and sold?

Why is the supply curve with constant unitary elasticity a straight line?
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