Question

If the quantity demanded of restaurant meals increases by 20 percent when income increases by 10 percent, the demand for restaurant meals is _________ (price sensitive/income-elastic/income-inelastic).

Name: Problem 35, Chapter 20: Economics: Principles, Applications, and Tools
Uploaded: 2020-07-15T00:13:03-08:00
Duration: 47 s
Channel: Alejandro Ruiz
Description: If the quantity demanded of restaurant meals increases by 20 percent when income increases by 10 percent, the demand for restaurant meals is (price sensitive/income-elastic/income-inelastic).

   If the quantity demanded of restaurant meals increases
by 20 percent when income increases by 10 percent,
the demand for restaurant meals is _________ (price
sensitive/income-elastic/income-inelastic).

Economics: Principles, Applications, and Tools

Arthur O'Sullivan,… 9th Edition

Chapter 20, Problem 35

Instant Answer

Solved by Expert Alejandro Ruiz

07/15/2020

Step 1

The formula for income elasticity of demand is: Income Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Income) In this case, the % change in quantity demanded is 20% and the % change in income is 10%. So, the income elasticity of demand is: Show more…

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If the quantity demanded of restaurant meals increases by 20 percent when income increases by 10 percent, the demand for restaurant meals is _________ (price sensitive/income-elastic/income-inelastic).

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Key Concepts

Income Elasticity of Demand

This concept measures the responsiveness of the quantity demanded of a good to changes in consumer income. It is calculated by taking the percentage change in quantity demanded divided by the percentage change in income. When the resulting value is greater than one, the good is considered income elastic, meaning that demand increases more than proportionally to income rises.

Elasticity

Elasticity is a broader economic concept that assesses how one variable responds to changes in another variable. In the context of demand, elasticity helps determine whether a good reacts strongly or weakly to changes in factors such as income or price, guiding both pricing strategies and market analyses.

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