If your income was to increase from $20,000 to $30,000 and the number of home -delivered pizzas you bought per year increased from 22 to 40, then your income elasticity of demand for home-delivered pizza equals
A) 1.45.
B) 0.58.
C) 2.86.
D) 0.69.
E) 0.40.

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. Here, the change in quantity demanded is from 22 to 40 pizzas, which is an increase of 18 pizzas. The percentage change in quantity demanded is (18/22) * 100 = 81.82%. The change in income is from $20,000 to $30,000, which is an increase of $10,000. The percentage change in income is (10,000/20,000) * 100 = 50%. Therefore, the income elasticity of demand is 81.82% / 50% = 1.6364, which is approximately 1.45 when rounded to the nearest options provided.

If Your Income Was to Increase from $20,000 to $30,000