Question

Consider that your income has increased this year from $50,000 to $60,000. You bought 3 pairs of designer jeans last year and decide to purchase 5 pairs this year. Keeping all other factors the same, find income elasticity of demand for the designer jeans?​

Answer 1

Answer:

3.33

Explanation:

Answer 2

The income elasticity of demand for designer jeans is 3.33

Given:

Initial income = $ 50,000

Final income = $ 60,000

Pairs of jeans bought at initial income level = 3

Pairs of jeans bought at final income level = 5

To find:

Income elasticity of demand for designer jeans

Solution:

We are given that,

Initial income = 50,000

Final income = 60,000

⇒ Change in income = 60,000 - 50,000 = 10,000

Also,

Initial demand for jeans = 3

Final demand for jeans = 5

⇒ Change in demand for jeans = 5 - 3 = 2

Now, we know that

Income elasticity of demand = $\frac{change in demand/initial demand }{change in income/initial income}}$

⇒ Income elasticity of demand = $\frac{2/3 }{10000/50000}$

⇒ Income elasticity of demand = (2 x 5)/3

⇒ Income elasticity of demand = 10/3

⇒ Income elasticity of demand = 3.33

SPJ2