Question

Tonya consumes 10 boxes of ramen noodles a year when her yearly income is $40,000. After her income falls to $30,000 a year, she consumes 40 boxes of ramen noodles a year. Calculate her income elasticity of demand for ramen noodles.

Answer 1

Answer:

-4.2

Explanation:

The income elasticity of demand determines the change in quantity demanded of a product due to change in income

The income elasticity of demand is calculate by:

Change in quantity demanded / change in price

(40 - 10) / [(40+10) / 2] / ($30,000 - $40,000) / [($30,000 + $40,000) / 2]

= (30 / 25) / ($10,000 / $35,000)

1.2 / 285.7 = -4.2