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slava [35]
3 years ago
8

The income elasticity of demand for housing property is exactly 1.40. Due to a recession, you expect incomes to drop by 5% next

year. How will consumers adjust their purchase for housing property?​
Business
1 answer:
a_sh-v [17]3 years ago
5 0

Answer:

Buy 7% less houses

Explanation:

Income elasticity of demand measures the responsiveness of quantity demanded to changes in income

Income elasticity of demand = percentage change in quantity demanded/ percentage change in income

1.40 = percentage change in quantity demanded/ 5%

Percentage change in quantity demanded = 1.4 × 5% = 7%

Because the coefficient of elasticity is greater than one, it means demand is income elastic. This means quantity demanded is responsive to changes in income. A fall in income would reduce the quantity demanded.

I hope my answer helps you

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