A. 0.5
B. 1.2
C. 2.5
D. 4.0
Correct Answer:
Option A = 0.5
Explanation
Income elasticity of demand is the percentage change in quantity demanded divided by the percentage change in income.
percent change in quantity demanded = 120 – 80 = 40
40/80 = 0.5
percent change in income = 4000 – 2000 = 2000
2000/2000 = 1
Income elasticity of demand = 0.5/1 = 0.5