Question

Suppose that after hurricane​ Irene, the average income in Cape​ Charles, Virginia decreased by 16 percent. In response to this change in​ income, suppose the quantity of steak demanded in Cape Charles​ (holding the price of steak​ constant) decreased by 14 percent. What is the income elasticity of demand for steak in Cape​ Charles?

Answer 1

Answer:

0.875

Explanation:

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

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

14% / 16% = 0.875

Demand is inelastic because the coefficient of elasticity is less than one.

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