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Suppose that demand for automobiles increases by 30% when consumers’ incomes increase by 25%. What is the income elasticity of demand for automobiles? round your answer to two decimal places.

Sagot :

When the above situation occurs, we can say that the income elasticity of demand for automobiles is 1.2.

What is the income elasticity of the automobiles?

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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