The income elasticity of demand for eggs has been estimated to be 0.57.If income grows by 5 percent in a period, how will that affect demand for eggs in that period, all other things unchanged?
A) demand will increase by more than 5.7 percent
B) demand will increase by about 2.9 percent
C) demand will decrease by more than 5.7 percent
D) demand will decrease

Question

Quizplus · Accepted Answer

The income elasticity of demand for eggs is positive but less than 1 (0.57). This means that eggs are a normal good, but not very sensitive to changes in income. Therefore, a 5 percent increase in income would lead to a 5 percent x 0.57 = 2.85 percent increase in demand for eggs. This is closest to choice B, which says demand will increase by about 2.9 percent.

The Income Elasticity of Demand for Eggs Has Been Estimated