Suppose the value of income elasticity of demand for a private college education is equal to 1.5. This means that:
A) every $1 increase in income provides an incentive for a $1.50 increase in expenditures on private college education.
B) a 10 percent decrease in private college tuition will have a large enough income effect to increase spending on private college education by 15 percent.
C) a 10 percent increase in income causes a 15 percent increase in the quantity of private college education purchased.
D) a 15 percent increase in income causes a 10 percent increase in the quantity of private college education purchased.

Question

Quizplus · Accepted Answer

An income elasticity of demand of 1.5 means that a 10 percent increase in income causes a 15 percent increase in the quantity of private college education purchased. Option A is incorrect as it suggests a proportional increase, whereas income elasticity only suggests the percentage increase in quantity demanded. Option B is incorrect as it refers to a decrease in tuition, whereas income elasticity does not have a direct relationship with price. Option D is incorrect as it suggests a smaller percentage increase in quantity demanded for a larger percentage increase in income, which is not in line with the given elasticity of demand.

Suppose the Value of Income Elasticity of Demand for a Private