Question

If a consumer daily income rises from Rs. $300$ to Rs.$350$, his purchase of a good $X$ increases from $25$ units per day to $40$ units; find the income elasticity of demand for $X$?

• A. $2$
• B. $1$
• C. $3$
• D. $4$

Answer 1

The correct option is C $3$

Change in quantity demand $\Delta Q$ = $Q_2-Q_1$ = $40-25=15$
Change in income $\Delta M$ = $M_2+M_1$ = $350-300$ = $50$
$\frac{\Delta Q}{\Delta M}$ x $\frac{M_2+M_1}{Q_2-Q_1}$

= $\frac{15}{50}\times \frac{350+300}{25+40}$

= $\frac{3}{10}\times 65065$

= $\frac{3}{10}\times 10$

= $3$