The income elasticity of demand for vacations is 5. If incomes increase by 3 per cent next year, the quantity of vacations demanded at today's price will increase by _______ per cent.
A) 5
B) 15
C) 5/3
D) 3

Question

Quizplus · Accepted Answer

The income elasticity of demand formula is percentage change in quantity demanded divided by percentage change in income. Given an elasticity of 5 and an income increase of 3%, the increase in quantity demanded is 5 * 3% = 15%.

The Income Elasticity of Demand for Vacations Is 5