Question

When income is ?$400400 per? week, 33 nights dining outnights dining out are demanded. when income is ?$600600 per? week, 55 nights dining outnights dining out are demanded. the income elasticity of demand for nights dining outnights dining out ?equals:?

Answer 1

In economics, income elasticity of demand measures the response of the number demanded for a good or service to a change in the income of the people demanding the good or service. The formula for calculating this metric is:

Income Elasticity Demand = Change in Quantity Demanded / Change in Income

Income Elasticity Demand = 55 nights – 33 nights / $600 - $400

Income Elasticity Demand = 0.11 = 11%

Since Income Elasticity Demand is 0.11 or 11% (positive number), therefore this means that an increase in income of the people leads to an increase in the demand of nights dining out.