Answer to Question #223222 in Microeconomics for Tom

Question

Income of a person is 8000 and he uses 60 units of a commodity. Calculate income elasticity of       demand when the income increased by 30% and consumption of the good is decline by 50%

Answer 1

income elasticity of demand $=\frac{percentage \space change\space in\space quantity \space demanded}{percentage\space change \space in \space income}$

$=\frac{-50}{30}\\=-1.67$

Thus, the income elasticity of demand is 1.67 (negative sign indicates that when income increases, quantity demanded will decrease)