Jenny's weekly income increases from $500 to $650. As a result, she goes out for dinner one day a week instead of one day every other week. What is Jenny's income elasticity of demand for restaurant dinners?
What will be an ideal response?
The income elasticity of demand = (percentage change in the quantity demanded) ÷ (percentage change in income). Using the midpoint method to calculate the percentages, the percentage change in the quantity of meals demanded = (1.0 - 0.5 ) ÷ (0.75 ) × 100 = 66.67 percent and the percentage change in income ($650 - $500 ) ÷ ($575 ) × 100 = 26.1 percent. Therefore the income elasticity of demand equals (66.67 percent) ÷ (26.1 percent) = 2.56.
You might also like to view...
M2 is comprised of
A) small-denomination time deposits + savings deposits + money market accounts. B) small-denomination time deposits + credit cards + money market accounts + gold deposits. C) M1 + small-denomination time deposits + savings deposits + retail money market mutual funds. D) M1 + small denomination time deposits + credit cards + money market accounts.
The portion of the Obama stimulus package that increased spending is best thought of as
A. discretionary (and contractionary) fiscal policy. B. nondiscretionary fiscal policy. C. monetary policy. D. discretionary (and expansionary) fiscal policy.