Question

Suppose the monthly income of a consumer decrease from ₹15,000 to ₹10,000. His demand for clothes changes from 70 units to 40 units. Calculate income elasticity of demand. Comment on the elasticity type and derive the curve.

Answer 1

Answer:

Income elasticity of demand is the responsiveness of quantity demanded for clothes to change in income of the consumer.

Given,

change in income (\DeltaΔI) = 5000 (15000-10000)

and

change in quantity demanded of clothes (\DeltaΔ Qd) = 5 (25-20)

Initial income ( I) = 10000

Initial quantity demanded of clothes (Qd) = 20

Income elasticity of demand is calculated as:

(\DeltaΔ Qd/Qd )/ (\DeltaΔI/I)= (5/20)/(5000/10000)

= (1/4)/ (1/2)

IED = 0.5

Answer 2

Answer:

Explanatio 240000: