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23 April, 15:29

When Judy's income increased from $400 to $440 a week, she increased her demand for concert tickets by 15 percent and decreased her demand for bus rides by 20 percent.

Calculate Judy's income elasticity of demand for concert tickets and bus rides.

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  1. 23 April, 16:46
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    The income elasticity of demand for concert tickets: 15/10 = 1.5

    The income elasticity of demand for bus rides: - 2

    Explanation:

    The income elasticity of demand for a product can be calculated by this following formula:

    +) The income elasticity of demand for a product = (% change in quantity of product demanded) / (% change in income)

    The change in Judy's income is:

    %change in income = (New income - Previous income) / Previous income * 100%

    = (440 - 400) / 400 * 100% = 10%

    % change in quantity of concert tickets: 15%

    => The income elasticity of demand for concert tickets = % change in quantity of concert tickets / %change in income = 15/10 = 1.5

    % change in quantity of bus rides: - 20%

    => The income elasticity of demand for bus rides = % change in quantity of concert tickets / %change in income = - 20/10 = - 2
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