If income rises from $28,500 to $31,500 and the income elasticity of widgets is 4, the elasticity value is

If income rises from $28,500 to $31,500 and the income elasticity of widgets is 4, the elasticity value is

• A. 4/3
• B. 1
• C. 3/4
• D. 4

Answer: (D)

Income elasticity of demand measures how responsive quantity demanded is to changes in income. It is defined as E_I = (%ΔQ_d) / (%ΔI). Here the elasticity is given as 4, meaning a 1% rise in income leads to a 4% increase in quantity demanded. First, find the income change: (31,500 − 28,500) / 28,500 = 3,000 / 28,500 ≈ 0.1053, about 10.5%. With an elasticity of 4, the expected percent change in quantity is 4 × 10.5% ≈ 42.1%. So the elasticity value itself is 4, which is why the correct choice is 4. The surrounding calculation shows how the 4% elasticity translates into the actual percentage change in quantity given the income change.

Income elasticity of demand measures how responsive quantity demanded is to changes in income. It is defined as E_I = (%ΔQ_d) / (%ΔI). Here the elasticity is given as 4, meaning a 1% rise in income leads to a 4% increase in quantity demanded.

First, find the income change: (31,500 − 28,500) / 28,500 = 3,000 / 28,500 ≈ 0.1053, about 10.5%. With an elasticity of 4, the expected percent change in quantity is 4 × 10.5% ≈ 42.1%.

So the elasticity value itself is 4, which is why the correct choice is 4. The surrounding calculation shows how the 4% elasticity translates into the actual percentage change in quantity given the income change.