Question

Mr. Raees Ahmad bought 50 litres of petrol when his monthly income was Rs. 25,000. Now his

monthly income has risen to Rs. 50,000 and he purchases 100 litres of petrol. His income elasticity of

demand for petrol is:

a.1

b. 100%

c. Less than one

d. More than one.​

Answer 1

The ratio of Income elesticity of demand is 1.

Option (a) is correct.

Explanation:

The formula of income elasticity demand is given below.

• Income Elasticity of Demand = Percentage change in quantity demand / percentage change in income
• Income Elasticity of Demand = ΔD / D ÷ ΔI / I

Income Elasticity of Demand = (100-50)/ (100 + 50)  ÷ (50000 - 25000)/ 50000 + 25000

I.E  of demand = (50/150) ÷ 25000 / 75000)

I.E  of demand = 0.333 / 0.333

I.E  of demand =  1

Thus the ratio of Income elesticity of demand is 1.