Question

In: Economics

Prior to 2018, Yusuf’s monthly salary was $1,000 and he used to purchase 40kg of dates....

Prior to 2018, Yusuf’s monthly salary was $1,000 and he used to purchase 40kg of dates. Now, his salary is $5,000 and the quantity of date increased to 75kg.

a). Calculate income elasticity of demand for date

c) Explain your answer in (a)

Solutions

Expert Solution

Income elasticity of demand = % change in quantity demanded ÷ % change in income.

a)

E (d) = dD/D ÷dI/I

where E(d) = income elasticity of demand,

D= quantity demanded,

I= income of the consumer.

Here we know that,

Quantity demanded in 2018 equals 40

Quantity demanded at present = 75

Income of the consumer in 2018 = 1000

Income of the consumer at present = 5000.

So let us assume these values in the equation to find out Income elasticity of demand. That is,

E(d)= 75/40 ÷ 5000/1000

= 1.875 ÷ 5

= 0. 375

b)  

The answer in question a explains the income elasticity of demand for date . The income elasticity of demand for date is less than 1 and greater than zero which means the income elasticity of demand for date is elastic.

The income elasticity of demand for date is elastic because date is a necessity for the consumer as milk and medicine. Variations in income must prompt the consumer to consume more amount of dates as it is a necessity good.


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