Question

The disposable income of Mehta family increases from Rs 5000 to Rs 15,000. As a result, the family‘s demand for milk and milk goods has increased from 30 liters to 60 liters per month. Calculate the income elasticity of demand. (

Answer 1

Income elasticity of demand= $\%$$change in quantity demanded\over change in icome$percentage change of quantity demanded$=new value-old value\over old value$

percentage change of quantity demanded =$60-30\over30$ =1

percentage change in income =$15000-5000\over5000$ =2

Therefore price elasticity of demand =$1\over 2$ =0.5

=0.5