Question #5337

Hours/month Total Utility Windsurfing Total Utility Snorkeling
0_____________0____________________0
1_____________60___________________20
2_____________110__________________38
3_____________150__________________53
4_____________180__________________64
5_____________200__________________70
Devon's total income rises from $35 to $55, ceteris paribus. Given that Devon changes his of choice of windsurfing and snorkeling, what is his income elasticity for windsurfing?
The correct answer is 0.64. However, I do not know the steps to find this value.

Expert's answer

IEd = (Y1+Y2)/(Q1+Q2) * (Q2 - Q1)/(Y2 - Y1) = 90/(Q1+Q2) * (Q2 - Q1)/20 = 4.5*(Q2 - Q1)/(Q2 + Q1) = 4.5*(4 - 3)/(4+3) = 0.64

As the total utility for windsurfing is higher, than for snorkeling, Devon will increase spending time only for windsurfing.

As the total utility for windsurfing is higher, than for snorkeling, Devon will increase spending time only for windsurfing.

## Comments

## Leave a comment