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Suppose that when the price of jelly rises by 20%, the quantity of peanut butter demanded at the current price of peanut butter falls by 10%. When income rises by 10%, the quantity of peanut butter demanded at the current price increases by 2%. Calculate the income elasticity of demand for peanut butter.

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Parrain

Answer: 0.2

Explanation:

Income elasticity of demand refers to the amount that the quantity demanded for a good changes by in response to a change in income.

The formula is therefore:

= Percentage change in quantity demanded of Peanut butter / Percentage change in income

= 2% / 10%

Income elasticity of demand = 0.2

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