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Calculate the income elasticity of demand (use arc or average)Income: $15,000 $20,000Quantity Demanded: 20,000 30,000Explain why the value is a positive number?Explain what would happen to a demand curve as income changes if the income elasticity was 2.0? Compare that outcome to the situation that w…
Elasticity = (change in Qd/Qd) / (change in income/income) = ((30,000 – 20,000)/20,000) / ((20,000 – 15,000) / 15,000) = (10,000/20,000) / (5,000/15,000) = (1/2) / (1/3) = 3/2 = 1.5. Since it’s a positive number, it means that demand goes up when income goes up — people buy more of this good when they have more money. This is a “normal” good. If the elasticity…

re 2.0, it would mean that people buy a *lot* more when their income goes up. These are luxury goods. If the elasticity were 0.2, it would mean that people buy a *little* bit more when their incomes go up. Sometimes we call these “necessities”.



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