Jenny's weekly income increases from $500 to $650. As a result, she goes out for dinner one day a week instead of one day every other week. What is Jenny's income elasticity of demand for restaurant dinners?
What will be an ideal response?
The income elasticity of demand = (percentage change in the quantity demanded) ÷ (percentage change in income). Using the midpoint method to calculate the percentages, the percentage change in the quantity of meals demanded = (1.0 - 0.5 ) ÷ (0.75 ) × 100 = 66.67 percent and the percentage change in income ($650 - $500 ) ÷ ($575 ) × 100 = 26.1 percent. Therefore the income elasticity of demand equals (66.67 percent) ÷ (26.1 percent) = 2.56.
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Indicate whether the statement is true or false
If the marginal propensity to consume is 0.75 and the desired amount of increase in real GDP is $240 billion, then by how much would government spending have to increase?
a. $240 billion b. $80 billion c. $60 billion d. $30 billion
The market clearing price of a good is
A. the price at which there is no surplus and no shortage. B. the price that consumers prefer. C. the price that producers prefer. D. the price at which there is at least some of the good available for everyone.
You have received your advanced degree in biochemistry with a specialty in recombinant DNA technology. Your colleagues wish to form a partnership to research adenovirus vectors. Your legal counsel advises you on the following aspects of a partnership, yet you tell her, based on your knowledge of economics, that you think one of the following points is INCORRECT.
A. The income of the partnership is treated as personal income and is subject only to personal taxation rates. B. An advantage of the partnership would be that it is relatively easy to form, almost as easy as forming a proprietorship. C. Partnerships often help reduce the costs of monitoring job performance in situations in which it is difficult to measure objectively. D. The personal assets of each partner should be safe and would not necessarily be at risk due to claims by financial institutions.