The income elasticity of demand for housing property is exactly 1.40.Due to a recession,you expect incomes to drop by 5% next year. How will consumers adjust their purchase for housing property?
A)Buy 5% more houses
B)Buy 5% fewer houses
C)Buy 7% more houses
D)Buy 7% fewer houses

Question

The income elasticity of demand for housing property is exactly 1.40.Due to a recession,you expect incomes to drop by 5% next year. How will consumers adjust their purchase for housing property?​
A)​Buy 5% more houses
B)Buy 5% fewer houses
C)Buy 7% more houses
D)​Buy 7% fewer houses

Quizplus · Accepted Answer

The income elasticity of demand for housing property being 1.40 implies that a 1% drop in income would lead to a 1.40% drop in demand for housing property. Therefore, a 5% drop in income would lead to a 7% drop in demand for housing property. Hence, consumers would buy 7% fewer houses. So, the correct answer is D.

The Income Elasticity of Demand for Housing Property Is Exactly