Question

The income elasticity of demand for haircuts is 1.5, and the income elasticity of demand for food is 0.14. You take a weekend job, and the income you have to spend on food and haircuts doubles. If the prices of food and haircuts remain the same, will you double your expenditure on haircuts and double your expenditure on food? Explain, why or why not ?.

Answer 1

SOLUTION:-

* Here given the income elasticity of demand for a hair cut is 1.5 and it is greater than 1.

* So it is income elastic, and it is normal goods.

* But the income elasticity of food is less than 1.

* So it income inelastic and normal goods.

* Suppose an increase in income would increase the hair cut and decrease the share of food.

* That means we double the expenditure of hair cut nut not in the food.

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