JAMB - Economics (2008 - No. 7)

If income rises from N2000 to N4000 and quantity demanded increase from 80 units to 120 units, find the income elasticity of demand

0.5

1.2

2.5

4.0

Income elasticity of demand is the percentage change in quantity demanded divided by the percentage change in income.

percent change in quantity demanded = 120 - 80 = 40
\(\frac{40}{80}\) = 0.5

percent change in income = 4000 - 2000 = 2000
\(\frac{2000}{2000}\) = 1

Income elasticity of demand = \(\frac{0.5}{1}\) = 0.5