If income rises from N2000 to N4000 and quantity demanded increase from 80 units to 120 units, find the income elasticity of demand
-
A.
0.5 -
B.
1.2 -
C.
2.5 -
D.
4.0
Correct Answer: Option A
Explanation
Income elasticity of demand is the percentage change in quantity demanded divided by the percentage change in income.
percent change in quantity demanded = 120 – 80 = 40
(frac{40}{80}) = 0.5
percent change in income = 4000 – 2000 = 2000
(frac{2000}{2000}) = 1
Income elasticity of demand = (frac{0.5}{1}) = 0.5