Tonya consumes 10 boxes of Ramen Noodles a year when her yearly income is $40,000. After her income falls to $30,000 a year, she consumes 40 boxes of Ramen Noodles a year. Calculate her income elasticity of demand for Ramen Noodles.
A) 4.2
B) -4.2
C) -2.25
D) 2.25

Question

Quizplus · Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. In this case, the percentage change in quantity demanded is (40 - 10) / 10 = 300%, and the percentage change in income is (30,000 - 40,000) / 40,000 = -25%. Therefore, the income elasticity of demand is 300% / -25% = -12.

Tonya Consumes 10 Boxes of Ramen Noodles a Year When