Question

When the income of the consumer rises by 10%, the quantity of a commodity decreases from 2000 units

to 1900 units. What is the income elasticity of demand?

(A) 2 (B) –2

(C) –1.5 (D) – 0.5.​

Answer 1

Answer: The correct answer is (D) -0.5

Explaination:

To calculate the income elasticity of demand, we need to know the percentage change in the quantity demanded and the percentage change in consumer income.

Let's call the original quantity demanded of the commodity Q₁ and the new quantity demanded Q₂. The original consumer income is I₁ and the new consumer income is I₂.

The percentage change in quantity demanded is:

(Q₁ - Q₂) / Q₁= (2000 - 1900) / 2000 = 0.05

The percentage change in consumer income is:

(I₂ - I₁) / I₁ = 0.10

The income elasticity of demand can be calculated as follows:

Income Elasticity of Demand = % Change in Quantity Demanded / % Change in Income

= 0.05 / 0.10

= 0.5

Income elasticity of demand

Income elasticity of demand is a measure of the responsiveness of the quantity demanded of a good or service to changes in consumer income.

It is of two types:-

• Positive income elasticity of demand: A good or service with a positive income elasticity of demand is referred to as a normal good. When consumer income increases, the demand for a normal good also increases.

• Negative income elasticity of demand: A good or service with a negative income elasticity of demand is referred to as an inferior good. When consumer income increases, the demand for an inferior good decreases.

To learn more about Income elasticity of demand, visit

https://brainly.in/question/6775627

https://brainly.in/question/31736917

#SPJ1

Answer 2

Answer: D ) -0.5

Explanation:

The income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in income. It is calculated as the percentage change in the quantity demanded divided by the percentage change in income.

In this case, we know that when income increases by 10%, the quantity demanded of the commodity decreases from 2000 units to 1900 units. To calculate the income elasticity of demand, we need to calculate the percentage change in the quantity demanded and the percentage change in income.

Percentage change in quantity demanded = [(new quantity - old quantity) / old quantity] x 100%

= [(1900 - 2000) / 2000] x 100%

= -5%

Percentage change in income = 10%

Now we can use the formula for income elasticity of demand:

Income elasticity of demand = (percentage change in quantity demanded) / (percentage change in income)

= -5% / 10%

= -0.5

Therefore, the income elasticity of demand for this commodity is -0.5. This means that the quantity demanded of the commodity is relatively inelastic with respect to changes in income, as a 1% increase in income leads to a 0.5% decrease in the quantity demanded.