Question

If the income elasticity for breakfast cereal is 0.6, and incomes increase by 10%, the demand for breakfast cereal will _____ by _____%. Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices decrease; 6 increase; 6 decrease; 12 increase; 12

Answer 1

Answer:

the quantity demanded for cereals will increase by 6%

Explanation:

as the consumer increase their consumption base on a higher income, a 10% increase in the consumer income will translate to a 6% in the quantity of cereals. That's because we know that:

Δcereals / Δincome  =  income elasticity

Δcereals / 10% = 0.6

Δcereals = 10% x 0.6 = 6%