Question

Suppose that when the price of hamburgers rises by 7%, the quantity of ketchup demanded at the current price of ketchup falls by 6%. When income rises by 12%, the quantity of ketchup demanded at the current price increases by 5%. Calculate the income elasticity of demand for ketchup.

Answer 1

Answer:

0.42

Explanation:

Income elasticity of demand measures the responsiveness of quantity demanded to changes in income.

If the absolute value of income elasticity of demand is greater than one, it means demand is elastic.

If the absolute value of income elasticity of demand is less than one, it means demand is inelastic.

Income elasticity of demand = percentage change in quantity demanded / percentage change in income

5/12 = 0.42