If the income elasticity of demand for some good is 2.4, a 10 percent increase in income results in
A) a 240 percent decrease in quantity demanded.
B) a 240 percent increase in the quantity demanded.
C) a 24 percent increase in the quantity demanded.
D) a 24 percent decrease in quantity demanded.
E) a 2.4 percent increase in the quantity demanded.

Question

Quizplus · Accepted Answer

The income elasticity of demand measures the responsiveness of quantity demanded to changes in income. If the income elasticity of demand for a good is 2.4, this means that a 1% increase in income will result in a 2.4% increase in quantity demanded (and vice versa). Therefore, a 10% increase in income will result in a 24% increase in quantity demanded (10% multiplied by 2.4). The correct answer is C, a 24% increase in the quantity demanded.

If the Income Elasticity of Demand for Some Good Is