A consumer had an increase in income, following a salary rise, from $80,000 per year to $100,000
Question:
A consumer had an increase in income, following a salary rise, from $80,000 per year to $100,000 per year. In the following year, her expenditure on holidays increased from $8,000 to $10,000, her expenditure on gym membership remained the same, and her expenditure on locally produced clothes fell from $2,000 to $1,500.
1. Calculate her income elasticity of demand for holidays.
2. Explain what the value of her income elasticity of demand for holidays means.
3. Calculate her income elasticity of demand for gym membership.
4. Explain what the value of her income elasticity of demand for gym membership means.
5. Calculate her income elasticity of demand for locally produced clothes.
6. Explain what the value of her income elasticity of demand for locally produced clothes means
Step by Step Answer:
To calculate the income elasticity of demand for each item we need to use the following formula Income Elasticity of Demand change in quantity demanded change in income To calculate the income elastic...View the full answer
