The coefficient of income in a regression of the quantity demanded of a commodity on price, income and other variables is 10. (a) Calculate the income elasticity of demand for this commodity at income of K10,000 and sales of 80,000 units.
The coefficient of income in a regression of the quantity demanded of a commodity on price, income and other variables is 10. (a) Calculate the income elasticity of demand for this commodity at income of K10,000 and sales of 80,000 units.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Question Two
The coefficient of income in a regression of the quantity
demanded of a commodity on price, income and other
variables is 10.
(a) Calculate the income elasticity of demand for this
commodity at income of K10,000 and sales of
80,000 units.
(b) What would be the income elasticity of demand if
sales increased from 800,000 to 900,000 units and
income rose from K10,000 to K11,000?
(c) What type of good is this commodity?
Expert Solution
Step 1
Income elasticity of demand measures the responsiveness of change in demand to change in income, keeping other factors of demand constant.
The coefficient of income in regression of the quantity demanded is 10
i.e., dQ / dM = 10
Note: Income is represented by M
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