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the Question is attached .

 I was confused when i saw the answer it was as follows : 0.4/0.2=2 .

The answer is not among the choices. and i do do not know how calculate elasticity using 3 inputs .

 Can any one help please :D

Attachment(s)

Income elasticity Question.docx   10 KB 1 version

Dear Hossam

Answer is not 2, the correct answer is: 1.8

Income elasticity of demand is defined as the percent change in quantity demanded (sales) given a percent change in income. The percent change in sales is calculated by taking the change in sales from 20,000 to 28,000 units, as follows:

% change in sales = (28,000 – 20,000) / 24,000 = 8,000 / 24,000 = 0.33

24000 = (28000+ 20000)/2 

For that same change in sales units, the percent change in income is calculated as follows:
% change in income = ($60,000 - $50,000) / $55,000 = $10,000 / $55,000 = 0.18

55000 = (60000 + 50000 ) /2

The income elasticity can then be calculated as follows:
Income elasticity of demand = % change in quantity demanded / % change in income
Income elasticity of demand = 0.33 / 0.18 = 1.8

Regards

Ranjith

Thank you very Much Ranjith . I was giving up hope that no one will ansewer back   :)

But as the way it was calculated , we neglected the third income and sales layer. is that ok?

With thrid layer income with sales also, the answer will be same. 

% change in sales = (39,200 – 20,000) / 29,600 = 19,200/ 29,600 = 0.6486

% change in income = ($72,000 - $50,000) / $61,000 = $22,000 / $61,000 = 0.3606

Income elasticity of demand = 0.6486 / 0.3606 = 1.8

 The same way u try with second line with thrid line, you will get the same anser 1.8

Thanks Again Ranjith

 it is clear to me now