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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 formula for the income elasticity of demand isE=%鈭�Q%鈭�I.

Step by step solution

01

Step 1. Income elasticity of demand

The income elasticity of demand measures how much the quantity demanded changes in response to changes in income. It refers to the ratio of change in quantity demanded to change in income, both of which are expressed in percentages.

02

Step 2. Formula

As described below, the percentage change in quantity needed is divided by the percentage change in revenue.

incomeelasticityofdemand=%changeinquantitydemanded%changeinincome

or

E=%鈭�Q%鈭�I

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Most popular questions from this chapter

Under which circumstances does the tax burden fall entirely on consumers?

If supply is inelastic, will shifts in demand have a larger effect on equilibrium price or on quantity?

The federal government decides to require that automobile manufacturers install new anti-pollution equipment that costs $2,000per car. Under what conditions can carmakers pass almost all of this cost along to car buyers? Under what conditions can carmakers pass very little of this cost along to car buyers?

A city has built a bridge over a river and it decides

to charge a toll to everyone who crosses. For one year,

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If the city wishes to raise as much revenue as possible

from the tolls, where will the city decide to charge a toll:

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portion of the demand curve, or the unit elastic portion?

Explain.

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