ECONOMICS (CBSE/UGC NET)

ECONOMICS

ELASTICITY OF DEMAND

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A company sells solar batteries. Last year income rose by 2% as a result demand increased from 1.6million units to 1.8 million. What is the YED?

A	5.2
B	-6.6
C	4.3
D	6.25

Explanation:

Detailed explanation-1: -Answer and Explanation: The correct answer is c. The income elasticity is 0.4 and the good is a normal good. The good is a normal good because demand rises as income rises.

Detailed explanation-2: -The formula for calculating income elasticity of demand is the percent change in quantity demanded divided by the percent change in income.

Detailed explanation-3: -Income elasticity of demand measures the responsiveness of the quantity demanded for a good or service to a change in the income of the people demanding the good. It is calculated as the ratio of the percentage change in quantity demanded to the percentage change in income.

Detailed explanation-4: -So as consumers’ income rises more is demanded at each price. 1. Normal necessities have an income elasticity of demand of between 0 and +1 for example, if income increases by 10% and the demand for fresh fruit increases by 4% then the income elasticity is +0.4. Demand is rising less than proportionately to income.

There is 1 question to complete.