For country A the income elasticity of beef is 0.7 whereas the income elasticity of cereals...

For country A the income elasticity of beef is 0.7 whereas the income elasticity of cereals is 0.15. This implies that for country A

A. Can't say

B. Poor people consume no beef

C. Rich people consume no cereal

D. As you become richer, beef becomes a larger part of your diet and cereals become a smaller part of your diet.

Solutions

Expert Solution

The answer is D " A you become richer, beef becomes a larger part of your diet and cereals become a smaller part of your diet"

Income elasticity of demand measures the degree of responsiveness of demand due to change in income.

In both below cases beef has higher elasticity which means that the beef is demanded more than cereals if consumer income doubles. Therefore with rise in income beef becomes larger part in diet and cereal becomes a smaller part of consumer diet.

Income elasticity of beef = 0.7

Income elasticity of 0.7 means that percentage change in beef demand is less than percentage change in income. Here if income rises 100 % and suppose with 100 % rise in income results in 70 % increase in beef consumption the elasticty will come as 0.7.

whereas income elasticity of cereals = 0.15

Here if income rises 100 % and suppose with 100 % rise in income results in 15 % increase in cereal consumption the elasticty will come as 0.15.

Rahul Sunny answered 1 year ago

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