Question

Question 15 If Incomes have risen by 20% and Demand for hand sanitizer has increased by 5% explain the income elasticity of demand coefficient for hand sanitizer. Marked out of 1.00 Flag question Select one: O a. = -0.25 Inferior O b. = 4 luxury, Income elastic C. = 0.25 necessity, income inelastic O d. = -4 income inelastic, luxury

Answer 1

Answer- c = 0.25 necessity, income inelastic

Given:- percentage rise in income= 20% , percentage rise in quantity demanded of hand sanitizer=5%.

Income elasticity of demand coefficient measures degree of responsiveness of the  quantity demanded of a commodity to a change in the income of the consumer.It is measured as-

Income elasticity of demand coefficient= Percentage change in quantity demanded/percentage change in income.

Substituting given values -

Income elasticity of demand coefficient= 5/20

=0.25

Income elasticity of demand coefficient= 0.25

With increase in income of the consumer by 20%, the demand for hand sanitizer increased by 5%. When increase in income of the consumer leads to an increase in the quantity demanded of a commodity, then income elasticity of demand is said to be positive. Since percentage increase in the quantity demanded of hand sanitizer( 5% ) is less than percentage increase in income( 20% ), the demand for hand sanitizer is income inelastic. Income elasticity of demand will be less than unity.Demand for necessity goods which are required on a daily basis are income inelastic . The quantity demanded of such commodities increases with increase in income but not as much as increase in income. The percentage change in quantity demanded is smaller than percentage change in income.