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In: Economics

Suppose we know that the income elasticity of demand for beer in cans in –0.3. If...

Suppose we know that the income elasticity of demand for beer in cans in –0.3. If consumers’ incomes go up by 20%, what would be the change in the demand for beer? (Provide the formula and your calculations.)

Solutions

Expert Solution

Income elasticity of demand is the percentage change in the quantity demanded when the income changes by 1 %.

Income elasticity of demand = percentage change in the quantity demanded / percentage change in income

-0.3 = percentage change in the quantity demanded / 20

percentage change in the quantity demanded = -0.3*20 = -6%

The quantity demanded falls by 6%

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Rahul Sunny answered 2 years ago
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