Question

The quantity demanded of instant noodles decreases from 1,000 to 700 as income increases from $10 per hour to $14 per hour. What is the income elasticity of demand for instant noodles

Answer 1

Answer:

The income elasticity of demand is -1.06

Explanation:

The computation of the income elasticity of demand for instant noodles is shown below:

= (change in quantity ÷ average quantity) ÷ (change in income ÷ average income)

where,

Change in quantity is

= 700 - 1000

= - 300

And, average quantity is

= (700 + 1000) ÷ 2

= 850

Change in income is

= 14 - 10

= 4

And, the average income is

= (14 + 10) ÷ 2

= 12

So,

Income elasticity of demand is

= (-300 ÷ 850) ÷ (4 ÷ 12)

= -1.05882353

= -1.06

The income elasticity of demand is -1.06