When Frank's salary increased $10 \%$ he bought $20 \%$ more running shoes each year.

What is Frank's income elasticity of demand?
Choose 1 answer:
(A) 0.2
(B) 200
(C) -2
(D) -0.2
(E) 2

Question

When Frank's salary increased $10 \%$ he bought $20 \%$ more running shoes each year.

What is Frank's income elasticity of demand?
Choose 1 answer:
(A) 0.2
(B) 200
(C) -2
(D) -0.2
(E) 2

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of Income Elasticity of Demand: Income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in income. It is calculated using the formula: $E_I = \frac{\% \Delta Q_d}{\% \Delta I}$ ‖ ‖ b ⋮ Calculation: Given that Frank's salary increased by 10% ($\% \Delta I = 10\%$) and he bought 20% more running shoes ($\% \Delta Q_d = 20\%$), we can substitute these values into the formula: $E_I = \frac{20\%}{10\%} = 2$ ‖ ∻Answer∻ ⚹ (E) 2 ⚹ ∻Key Concept∻ ⚹ Income Elasticity of Demand ⚹ ∻Explanation∻ ⚹ The income elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in income. In this case, Frank's income elasticity of demand for running shoes is 2, indicating that running shoes are a normal good and that demand is income elastic. ⚹◊What is the formula for calculating income elasticity of demand in Microe⍭ Generate me a similar question◊

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