Question

Suppose that after hurricane​ Irene, the average income in Cape​ Charles, Virginia decreased by 4 percent. In response to this change in​ income, suppose the quantity of steak demanded in Cape Charles​ (holding the price of steak​ constant) decreased by 2 percent. What is the income elasticity of demand for steak in Cape​ Charles?
The income elasticity of demand for steak in Cape Charles is __________.

Answer 1

Answer:

The income elasticy of demand for steak is 0.5

Explanation:

The income elasticity of demand formula is:

IED = Δ%Q / Δ%Y

Where:

• Δ%Q is change in quantity demanded
• Δ%Y is change in income

So for this case:

IED = 2%/4%

      = 2/4

      = 0.5