Question

If Cassandra bought 12 blouses last year when her income was $46,000 and she buys 14 blouses this year when her income is $52,000, then her income elasticity of demand for blouses is approximately a.-2.52. ob. +1.26 c -0.80. d. -1.26. e. +0.80.

Answer 1

Answer:

b. +1.26

Explanation:

The computation of the income elasticity of demand is shown below:

= (Percentage Change in quantity demanded) ÷ (Percentage Change in income)

= (change in quantity demanded ÷ average of quantity demanded) ÷ (change in income ÷ average of income)  

where,  

Change in quantity demanded would be

= Q2 - Q1

= 14 blouses - 12 blouses

= 2 blouses

And, average of quantity demanded would be

= (12 + 14) ÷ 2

= 13

Change in income would be

= $52,000 - $46,000

=  $6,000

And, average of income would be

= ($52,000 + $46,000) ÷ 2

= 49,000

So, after solving this, the income elasticity of demand is +1.26