If income rises from N2000 to N4000 and quantity demanded increase from 80 units to 120 units, find the income elasticity of demand
-
0.5
- 1.2
- 2.5
- 4.0
The correct answer is: 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