Suppose that demand for automobiles increases by 30% when consumers’ incomes increase by 25%. What is the income elasticity of d
emand for automobiles? round your answer to two decimal places.
1 answer:
When the above situation occurs, we can say that the income elasticity of demand for automobiles is<u> 1.2.</u>
<u />
<h3>What is the income elasticity of the automobiles?</h3>
This can be found by the formula:
= Change in quantity demanded of automobiles / Change in income
Solving gives:
= 30% / 25%
= 1.2
In conclusion, the income elasticity here would be 1.2.
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