Question

You are employed as an economic consultant to the regional planning office of a large metropolitan area. A recession has caused the hospitals in the city to consider raising prices. You know that the price elasticity of demand for hospital services equals -0.25, and the income elasticity of demand equals +0.45. Given this information, tell how the quantity demanded for services will change if:

what will be the average real income decreases by 10 percent?

Answer 1

If the average real income decreases by 10 percent, then the quantity demanded for services will decrease by 10%*0.45 = 4.5%.