5.4 elasticity in areas other ... current objective calculate income elasticity of demand question the…

5.4 elasticity in areas other ... current objective calculate income elasticity of demand question the quantity demanded of luxury vehicles increases from 3,250 to 5,400 as income increases from $40 per hour to $50 per hour. what is the income elasticity of demand for luxury vehicles? round your answer to the nearest hundredth. your answer may be a positive or negative number. sorry, thats incorrect. try again?

5.4 elasticity in areas other ... current objective calculate income elasticity of demand question the quantity demanded of luxury vehicles increases from 3,250 to 5,400 as income increases from $40 per hour to $50 per hour. what is the income elasticity of demand for luxury vehicles? round your answer to the nearest hundredth. your answer may be a positive or negative number. sorry, thats incorrect. try again?

Answer

Explanation:

Step1: Calculate the percentage change in quantity demanded

The formula for percentage change in quantity demanded $%\Delta Q_d=\frac{Q_2 - Q_1}{\frac{Q_2+Q_1}{2}}\times100$. Here, $Q_1 = 3250$ and $Q_2=5400$. $%\Delta Q_d=\frac{5400 - 3250}{\frac{5400 + 3250}{2}}\times100=\frac{2150}{\frac{8650}{2}}\times100=\frac{2150\times2}{8650}\times100=\frac{4300}{8650}\times100\approx49.71%$

Step2: Calculate the percentage change in income

The formula for percentage change in income $%\Delta I=\frac{I_2 - I_1}{\frac{I_2+I_1}{2}}\times100$. Here, $I_1 = 40$ and $I_2 = 50$. $%\Delta I=\frac{50 - 40}{\frac{50+40}{2}}\times100=\frac{10}{\frac{90}{2}}\times100=\frac{10\times2}{90}\times100=\frac{20}{90}\times100\approx22.22%$

Step3: Calculate income - elasticity of demand

The formula for income - elasticity of demand $E_I=\frac{%\Delta Q_d}{%\Delta I}$. $E_I=\frac{49.71%}{22.22%}\approx2.24$

Answer:

$2.24$