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Congratulations! You have just landed your first job out of college as an economic analyst at the Bureau of Labor Statistics. Your starting salary is $55,000 per year; an increase of 250% per year over the salary you made at the local coffee shop. The corresponding table gives the percentage change in your purchases of each good after your income increases. Use this information to estimate your income elasticity of demand for each of the items.

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(a) Income elasticity for meals at restaurant:

= % Change in the quantity of meals at restaurants / % Change in the income of consumer

= (500 / 250)  

= 2

(b) Income elasticity for cups of coffee:

= % Change in the quantity of cups of coffee / % Change in the income of consumer

= 80 / 250

= 0.32

(c) Income elasticity for instant noodels:

= % Change in the quantity of instant noodles / % Change in the income of consumer

= -75 / 250

= -0.3

abiolataiwo2015

a. Income elasticity for meals at restaurant is 2.

b. Income elasticity for cups of coffee is 0.32.

c. Income elasticity for instant noodles is -0.3.

Income elasticity

a.  Income elasticity for meals at restaurant:

Income elasticity = % Change in the quantity of meals at restaurants / % Change in the income of consumer

Income elasticity = (500 / 250)  

Income elasticity = 2

b. Income elasticity for cups of coffee:

Income elasticity = % Change in the quantity of cups of coffee / % Change in the income of consumer

Income elasticity = 80 / 250

Income elasticity = 0.32

c. Income elasticity for instant noodles:

Income elasticity = % Change in the quantity of instant noodles / % Change in the income of consumer

Income elasticity = -75 / 250

Income elasticity = -0.3

Inconclusion the Income elasticity for meals at restaurant is 2, Income elasticity for cups of coffee is 0.32 and the income elasticity for instant noodles is -0.3.

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