Answer to Question #28210 in Economics of Enterprise for kathy

Question

A consumer doubles her expenditure on ice cream consumed when price increases by 25%. As a result we can say that over this section of the demand curve, in absolute value terms own price elasticity of demand for ice cream is:
Greater than 1
Equal to 1
Less than 1 but greater than zero
Zero
More information is required to answer this question

Answer 1

Answer:& Greater than 1
In economics, income elasticity of demand measures the responsiveness of the demand for a good to a change in the income of the people demanding the good, ceteris paribus. It is calculated as the ratio of the percentage change in demand to the percentage change in income. For example, if, in response to a 10% increase in income, the demand for a good increased by 20%, the income elasticity of demand would be 20%/10% = 2.

In our case Eid = 100%/25% = 4, so the demand for ice-cream is elastic enough.