Answer to Question #42270 in Microeconomics for abdullah

Question

Layla spends 25% of her income on clothes, regardless of the price of clothes, and regardless of her income each year.
10 a. What is the price elasticity of her demand for clothing?
10 b. What is the income elasticity of her demand for clothing

Answer 1

If Layla spends 25% of her income on clothes,regardless of the price of clothes, and regardless of her income each year:

a) Her demand for clothes is unit-elastic, because if price increases, the quantity demanded will decrease proportionally, so Ed = 1

b) Her demand for clothes is also unit-elastic, because for any change of income, the percent change of the quantity demanded will be the same, so Ei = 1