🔒 Closed Income Elasticity

[Deleted member 1890317]

Baka may alam
kayo dito mga master


Suppose the quantity of apple increases by 10 from 18 while the price decreases from 22 to 20 while the income of Mr. Juan increases from 350 to 400. Compute the income elasticity?

 

[Raging_Jalapeno]

To compute the income elasticity of demand, we need to know the percentage change in quantity demanded due to a percentage change in income.

Let's start by calculating the percentage change in income:

%ΔI = [(New Income - Old Income) / Old Income] x 100
%ΔI = [(400 - 350) / 350] x 100
%ΔI = 14.29%

Next, let's calculate the percentage change in quantity demanded:

%ΔQ = [(New Quantity - Old Quantity) / Old Quantity] x 100
%ΔQ = [(18 + 10 - 18) / 18] x 100
%ΔQ = 55.56%

Now we can calculate the income elasticity of demand using the formula:

Income Elasticity of Demand = %ΔQ / %ΔI

Income Elasticity of Demand = 55.56% / 14.29%
Income Elasticity of Demand ≈ 3.89

Therefore, the income elasticity of demand is approximately 3.89. This indicates that the good is income elastic, meaning that a 1% increase in income leads to a greater than 1% increase in the quantity demanded of the good.