The income elasticity of demand for healthcare in Artland is 2.5. In 2001 the quantity demanded of healthcare decreased by $25 \%$.

What change in national income in Artland causes this decrease in healthcare?

Choose 1 answer:
(A) Artland's national income decreased by $10 \%$.
(B) Artland's national income decreased $25 \%$
(C) Artland's national income increased $25 \%$
(D) Artland's national income increased by $10 \%$
(E) Artland's national income increased by $2.5 \%$.

Question

The income elasticity of demand for healthcare in Artland is 2.5. In 2001 the quantity demanded of healthcare decreased by $25 \%$.

What change in national income in Artland causes this decrease in healthcare?

Choose 1 answer:
(A) Artland's national income decreased by $10 \%$.
(B) Artland's national income decreased $25 \%$
(C) Artland's national income increased $25 \%$
(D) Artland's national income increased by $10 \%$
(E) Artland's national income increased by $2.5 \%$.

Accepted Answer

***A*** ∻Key Concept∻ ⚹Income Elasticity of Demand⚹ ∻Explanation∻ ⚹Income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in income. The formula is $E_I = \frac{\% \Delta Q_d}{\% \Delta I}$. Given $E_I = 2.5$ and $\% \Delta Q_d = -25\%$, solving for $\% \Delta I$ gives $\% \Delta I = \frac{-25\%}{2.5} = -10\%$. Therefore, Artland's national income decreased by 10%.⚹◊What is the formula for calculating the change in quantity demanded based on income elasticity of demand?⍭ Generate me a similar question◊

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