Question

Suppose that after hurricane​ Irene, the average income in Cape​ Charles, Virginia decreased by

8

percent. In response to this change in​ income, suppose the quantity of steak demanded in Cape Charles​ (holding the price of steak​ constant) decreased by

6

percent. What is the income elasticity of demand for steak in Cape​Charles?

The income elasticity of demand for steak in Cape Charles is

nothing.

​(Enter your response rounded to two decimal​ places.)

Answer 1

The income elasticity of demand for a particular good indicates the extent of response in quantity demanded with respect to change in the income of buyers , keeping all other factors constant .

The formula for calculating the income elasticity of demand can be expressed as :-

Income elasticity of demand = Percentage change in quantity demanded ÷ Percentage change in Income

The question clearly states that the average income in Cape Charles is decreased by 8 percent whereas the quantity of steak demanded is decreased by 6 percent.

Therefore , the income elasticity of demand for steak in Cape Charles = 6/8 = 0.75

The income elasticity of demand for steak is less than 1

Therefore , the the buyers of steak in Cape Charles does not change their demand for steak as much as compared to their change in income. This indicates that steak is essential commodity for the buyers