Question

Suppose a consumer's income increases from Rs. $30,000$ to Rs. $36,000$. As a result, the consumer increases her purchases of compact discs(CDs) from $25$ CDs to $30$ CDs. What is the consumer's income elasticity of demand for CDs?

• A. $0.5$
• B. $1.0$
• C. $1.5$
• D. $2.0$

Answer 1

Answer: (B)

$1.0$

We know, by income elasticity of demand of CDs
$=\frac{Q-Q1}{Y-Y1}\ast \frac{Y}{Q}$
$=\frac{25-30}{30000-36000}\ast \frac{30000}{25}=1$