The income elasticity of demand for eggs has been estimated to be 0.57.If income grows by 15 percent in a period, how will that affect total expenditures on eggs in that period, all other things unchanged?
A) total expenditures will fall
B) total expenditures will rise
C) total expenditures will remain unchanged
D) not enough information is given to answer the question

Question

Quizplus · Accepted Answer

The income elasticity of demand for eggs is 0.57, which means that a 1% increase in income leads to a 0.57% increase in the demand for eggs. Therefore, if income grows by 15%, we can expect the demand for eggs to increase by 0.57*15 = 8.55%. As a result of this increase in demand, total expenditures on eggs will also rise, hence the correct answer is B.

The Income Elasticity of Demand for Eggs Has Been Estimated