Demand for a particular product was found to change from 1200 units to 900 units when...

Demand for a particular product was found to change from 1200 units to 900 units when the income of the consumer fell from Rs. 45,000 to Rs. 41,000. Compute the income elasticity of demand for the product.

Expert Solution

Answer-

E _{I = percentage change in quantity demanded / percentage
change in income}

Percentage change in quantity demanded =

change in quantity / original quantity × 100 = -300/1200× 100

= - 25%

percentage change in income =

change in income / original income

= -4000 / 45000 × 100 = - 8.89%

E _I_⁼-25 % / - 8.89% = 2.81 %>

Rahul Sunny answered 2 years ago

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