If the income elasticity of tomatoes is estimated to approximate +0.25, what would you expect to...
If the income elasticity of tomatoes is estimated to approximate +0.25, what would you expect to happen to the consumption of tomatoes as personal income rises?
Homework Answers
Consumption and demand are related – the increasing demand increases its consumption.
Demand depends on income elasticity of demand (Ied) – the increasing income increases demand.
Given, Ied is 0.25.
Suppose income of a consumer increases by 10%.
By the formula as below:
Ied = Percentage change in QD / Percentage change in income
0.25 = Percentage change in QD / 10 [by omitting % sign]
0.25 × 10 = Percentage change in QD
Percentage change in QD = 2.5%
Therefore, consumption increases by the increase in personal income. This happens because the income elasticity is positive.
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