Question: Suppose that your Engel curve for X is given by the equation X = a + bI where I is income and a and b

Suppose that your Engel curve for X is given by the equation

X = a + bI

where I is income and a and b are constants.

a. If your income increases from I to I + ΔI, by how much does X increase?

b. Write down a formula, in terms of X and I, for your income elasticity of demand for X.

c. Use the equation X = a + bI to eliminate I from your formula, and write a formula for income elasticity in terms of X alone.

d. As your consumption of X increases, what happens to your income elasticity of demand for X?

e. If your Engel curve is a line through the origin, what is your income elasticity of demand for X?


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