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.

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.

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