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Question
Macroeconomics
Posted 10 months ago
Holly, Brian, Fred, Tracy, and Melanie have income elasticities for veggie burgers as given below:
\begin{tabular}{ll}
Person & Income elasticity of demand \\
\hline Tracy & 2 \\
Brian & 1 \\
Fred & -0.75 \\
Holly & 0.1 \\
Melanie & -1.5
\end{tabular}
Who would respond the least in their purchase of veggie burgers in response to an increase in income?
Choose 1 answer:
(A) Melanie
(B) Holly
(c) Tracy
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Answer from Sia
Posted 10 months ago
Solution
a
Understanding Income Elasticity of Demand: Income elasticity of demand measures how the quantity demanded of a good responds to a change in consumers' income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income. Positive values indicate normal goods, where demand increases as income increases. Negative values indicate inferior goods, where demand decreases as income increases. Values between 0 and 1 indicate a necessity good, and values greater than 1 indicate a luxury good
b
Analyzing the Given Data: The income elasticity of demand values for Tracy (2), Brian (1), Fred (-0.75), Holly (0.1), and Melanie (-1.5) indicate how each person's demand for veggie burgers would change with an increase in income. Tracy and Brian have positive elasticities, indicating that their demand for veggie burgers will increase with higher income. Fred and Melanie have negative elasticities, indicating that their demand for veggie burgers will decrease with higher income. Holly has an elasticity close to zero, indicating a very small change in demand with changes in income
c
Determining the Least Response: To find who would respond the least to an increase in income, we look for the individual with the income elasticity of demand closest to zero, as this indicates the smallest change in quantity demanded in response to a change in income
Answer
(B) Holly
Key Concept
Income Elasticity of Demand
Explanation
Holly would respond the least to an increase in income in her purchase of veggie burgers because she has the income elasticity of demand closest to zero (0.1), indicating a very small change in demand with an increase in income.
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