ECONOMICS (CBSE/UGC NET)

ECONOMICS

ELASTICITY OF DEMAND

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

Question 6Ali’s income has just risen from RM940 per week to RM1, 060 per week. As a result, he decides to purchase 9 percent more steak per week.The income elasticity of Ali’s demand for steak is?

A	0.75
B	1.00
C	1.33
D	0.90

Explanation:

Detailed explanation-1: -Income elasticity of demand is an economic measure of how responsive the quantity demanded for a good or service is to a change in income. The formula for calculating income elasticity of demand is the percentage change in quantity demanded divided by the percentage change in income.

Detailed explanation-2: -How do you calculate income elasticity of demand? The income elasticity of demand is calculated by taking the percentage change in quantity demanded and dividing it by the percentage change in income.

Detailed explanation-3: -Calculate the income elasticity of demand for food when the price of food is $50 a unit. When the price of food is $50 a unit, the income elasticity of demand for food is nothing. The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income.

Detailed explanation-4: -There are five main categories of income elasticity of demand based on the percentage increase or decrease in quantity compared to the increase or decrease in incomes. Starting from the largest positive change, they are called: High, Unitary, Low, Zero, and Negative.

There is 1 question to complete.