Question

As the average hourly wage increases from $18 per hour to $20 per hour, the quantity of frozen dinners demanded decreases from 3,550 to 3,350. What is the income elasticity of demand for frozen dinners? Round your answer to the nearest hundredth. Your answer may be a positive or negative number.

Answer 1

Answer:

The income elasticity of demand for frozen dinners is negative when there is an increase of hourly wages. -51%

Explanation:

When the income elasticity is negative it means that the good is inferior so when the income is increased, the demand of the good decrease beacuse its demand change to a better quality good. For instance in this case a fresh meal.

income elasticity % = % change in quantity / % change in income

(((3350-3550)/3550)/((20-18)/18))*100