Question

Arista always spends 10 % of her income on gizmos. Assume that her income increases by some percentage while the price of gizmos remains constant (and that all gizmos cost the same). What is her income elasticity of demand for gizmos?

Answer 1

Answer:

1

Explanation:

Income elasticity is how the quantity demanded of a product changes due to a change in the income of an individual.

The formula for calculating Income elasticity of demand is, percentage change in quantity demanded divided by the percentage change in income.

Here the income of Arista increases but the price of gizmos remains the same, that is why the 10% now will be more than what it used to be before the increase in income.

Hope this helps. Good luck.