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Chapter 5: Q.21 (page 130)

What is the formula for the income elasticity of demand?

Short Answer

Expert verified

The percent change in quantity demanded divided by the percent change in income is the formula for estimating the income elasticity of demand.

Step by step solution

01

Definition

Income elasticity of demand

The sensitivity of the quantity desired for a specific good to a change in the actual income of customers who buy it is referred to as income elasticity of demand.

02

Explanation

The income elasticity of demand is computed by dividing the percent change in quantity demanded by that of the percent change in income. When demand is elastic, it means that the quantity demanded vary more than the price.

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Most popular questions from this chapter

Would you expect supply to play a more significant role in determining the price of a basic necessity like food or a luxury like perfume? Explain. Hint: Think about how the price elasticity of demand will differ between necessities and luxuries.

Assume that the supply of low-skilled workers is fairly elastic, but the employers鈥� demand for such workers is fairly inelastic. If the policy goal is to expand employment for low-skilled workers, is it better to focus on policy tools to shift the supply of unskilled labor or on tools to shift the demand for unskilled labor? What if the policy goal is to raise wages for this group? Explain your answers with supply and demand diagrams.

A city has built a bridge over a river and it decides to charge a toll to everyone who crosses. For one year, the city charges a variety of different tolls and records information on how many drivers cross the bridge. The city thus gathers information about the elasticity of demand. If the city wishes to raise as much revenue as possible from the tolls, where will the city decide to charge a toll: in the inelastic portion of the demand curve, the elastic portion of the demand curve, or the unit elastic portion? Explain

Would you usually expect elasticity of demand or supply to be higher in the short run or in the long run? Why?

From the data in Table 5.6 about the supply of alarm clocks, calculate the price elasticity of supply from point J to point K, point L to point M, and point N to point P. Classify the elasticity at each point as elastic, inelastic, or unit elastic.
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