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30 July, 16:03

The quantity demanded of Good A has recently increased by 2% in response to an increase in income. By how much must income have increased (as a percentage) for the income elasticity of demand to equal 0.2?

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  1. 30 July, 19:27
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    Income must have increased by 10%

    Explanation:

    To find the answer, we use the Income Elasticity of Demand (IED) formula:

    IED = Change in quantity demanded / change in income

    Now, we plug the amounts into the formula and solve:

    0.2 = 0.02 / X

    0.2 * X = (0.02 / X) * X

    0.2X = 0.02

    0.2X*100 = 0.02*100

    20X = 2

    20X/20 = 2/20

    X = 1/10

    X = 0.1

    X = 10%
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