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Q5. If income rises by 5% and the income elasticity of demand is known to be...

Q5. If income rises by 5% and the income elasticity of demand is known to be 0.5. What change in demand would you expect to see?

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Answer #1

Income elasticity of demand refers to the sensitivity of the quantity demanded for a certain good to a change in real income of consumers who buy this good, keeping all other things constant.

The formula for calculating income elasticity of demand is the percent change in quantity demanded divided by the percent change in income.

increase in income by 5% increases quantity demanded by 2.5%

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