For U.S. consumers, the income elasticity of demand for fruit juice is 1.1. If the economy enters a recession next year and consumer income declines by 2.5%, what is the expected change in the quantity of fruit juice demanded next year?
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Expert's answer
2012-02-02T10:47:25-0500
ed = %change in quantity/%change in income, %change in quantity = ed*%change in income = 1.1*(-2.5%) = -2.75% the expected change in the quantity of fruit juice demanded next year will be -2.75%, so the quantity of fruit juice demanded will decrease by 2.75%
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