Question

When Tim earned​ $65,000 he purchased 10 novels a year. His income has just increased to​ $68,000 and he plans to purchase 15 novels this year.​ Tim's income elasticity of demand for novels equals

Answer 1

Answer:

8.88

Explanation:

Data provided in the question:

Initial income, I₁ = $65,000

Initial novel purchased, D₁ = 10

Final income, I₂ = $68,000

Final novel purchased, D₂ = 15

Now,

Tim's income elasticity of demand for novels will be

= $\frac{(\frac{D_2-D_1}{D_1+D_2})}{(\frac{I_2-I_1}{I_1+I_2})}$

on substituting the respective values, we get

= $\frac{(\frac{15-10}{10+15})}{(\frac{68,000-65,000}{65,000+68,000})}$

= [5 ÷ 25] ÷ [3,000 ÷ 133,000 ]

= 0.2 ÷ 0.0225

= 8.88