Question

What is the correct answer?

Use the figure to calculate the Income elasticity of demand when Income Increases from $25,000 to $30,000: Price (5) 30 D' (M = $30,000) DM - $25,000) 900 1,100 Quantity of good X -0.10 O-1.10 0.1818 O 0.20 1.10

Answer 1

Answer
Income elasticity of demand=(change in quantity/average quantity)/(change in income/average income)
Change in quantity=1100-900=200
average quantity=(1100+900)/2=1000
Change in income=30000-25000=5000
average income=(25000+30000)/2=27500
Income elasticity of demand=(200/1000)/(5000/27500)
=1.1

the income elasticity of demand is 1.10

Option 5