Question

       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)

Answer 1

By the definition of the income elasticity of demand, we have:

$$Y_d=\dfrac{\%Q_d}{\%Y}=\dfrac{100\%}{25\%}=4$$

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.