Question
If consumers always spend 15 percent of their income on clothing, then the income elasticity of demand for clothing is
a. 0.15
b. 1.00
c. 1.15
d. 1.50
e. none of the answer choices
a. 0.15
b. 1.00
c. 1.15
d. 1.50
e. none of the answer choices
Ask by Bowman Robbins. in the United States
Jan 27,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
The income elasticity of demand for clothing is 1.00.
Solution
To determine the income elasticity of demand for clothing when consumers always spend 15 percent of their income on clothing, we can use the formula for income elasticity of demand (E):
In this case, since consumers are spending a constant percentage (15%) of their income on clothing, we can infer that the quantity demanded will change in direct proportion to changes in income.
- If income increases by 1%, the amount spent on clothing will also increase by 1% (since they still spend 15% of their income).
- Therefore, the percentage change in quantity demanded is equal to the percentage change in income.
This means that:
Thus, the income elasticity of demand for clothing is 1.00.
The correct answer is:
b. 1.00
b. 1.00
Answered by UpStudy AI and reviewed by a Professional Tutor
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Simplify this solution Extra Insights
The income elasticity of demand measures how the quantity demanded of a good responds to changes in consumer income. When consumers consistently allocate a fixed percentage of their income to clothing, regardless of how their income changes, the income elasticity of demand equals 1, indicating that clothing expenditure grows proportionally with income.
This means as income rises, spending on clothing also increases at the same rate. Thus, if income increases by 10%, consumers will spend an additional 10% on clothing, confirming that the elasticity is indeed 1.00.
