If a consumer increases her quantity of ice cream consumed by 100% when her income rises by 25%. Calculate her income elasticity of demand for the ice cream and interpret the result. (2marks)
By the definition of the income elasticity of demand, we have:
As we can see from calculations, "Y_d>1". It means that the ice cream is the normal good. Also, the consumer is relatively responsive to changes in income.
Comments
Leave a comment