Question

9. If the price of oil increases and the income of most employees in Dubai increased by 10% , the quantity of apartments that were rented in JBR increased by 7 % , while quantity of apartments that were rented in international city decreased by 5 % .

   1. Calculate the income elasticity of demand for apartments in JBR.

   2. Calculate the income elasticity of demand for apartments in international city.

   3. Explain why the increase in income has affected JBR and international city differently.

            

            

Answer 1

Here,

Increase in income = 10%

Increase in home demanded in JBR = 7%

Decrease in home demanded in international city = 5%

Income elasticity for apartments in JBR = 7%/10% = 0.7

Income elasticity for apartments in International = - 5%/10% = -0.5

The elacticity functions differently, as the income of people increases there standard of living increases. Also people like to move to pose areas as their income increases.

SO JBR is considered pose and with high standard of living as compared to international city and hence the difference