The income elasticity of demand for peaches has been estimated to be 1.43.If income grows by 15 percent in a period, how will that affect demand for peaches in that period, all other things unchanged?
A) demand will increase by less than 15 percent
B) demand will increase by 21.5 percent
C) demand will decrease by 21.5 percent
D) demand will decrease by 15 percent

Question

Quizplus · Accepted Answer

The income elasticity of demand for peaches is positive, which means that as income increases, demand for peaches will also increase. The magnitude of the elasticity, 1.43, indicates that a 1% increase in income will lead to a 1.43% increase in demand for peaches. Therefore, a 15% increase in income will result in a 1.43 x 15 = 21.5% increase in demand for peaches. So, choice B is the correct answer.

The Income Elasticity of Demand for Peaches Has Been Estimated