If the income elasticity of demand of houses is exactly 1.40.Due to a recession,you expect incomes to drop by 25% next year.How will consumers adjust their purchase for houses?
A)Buy 35% more houses
B)Buy 35% less houses
C)Buy 25% more houses
D)Buy 25% less houses

Question

Quizplus · Accepted Answer

The income elasticity of demand is 1.40, meaning a 1% decrease in income results in a 1.40% decrease in demand. A 25% drop in income would lead to a 35% decrease in the demand for houses (1.40 * 25% = 35%).

If the Income Elasticity of Demand of Houses Is Exactly