In Figure 5-2, what is the income elasticity of demand for automobiles (using the point elasticity formula)? a.1/2 b.−1/2 c.2 d.−2 e.Approaching zero **Figure 5-2: Relationship between Income and Quantity Purchased**The table illustrates the quantities of three different goods—automobiles, coffee, and margarine—purchased at two different income levels: $25,000 and $50,000.- **Income**: Indicates the annual income levels of consumers. - **Quantity Purchased**: Reflects the number of units bought of each good corresponding to the specified income levels.**Details of Goods Purchased:**1. **Automobiles**: - At an income of $25,000, 2 automobiles were purchased. - At an income of $50,000, 3 automobiles were purchased.2. **Coffee**: - At an income of $25,000, 10 units were purchased. - At an income of $50,000, 8 units were purchased.3. **Margarine**: - At an income of $25,000, 1 unit was purchased. - At an income of $50,000, 3 units were purchased.**Analysis**:This table demonstrates how the quantity of goods purchased can vary with changes in income levels. Notice that the purchase of automobiles and margarine increases as income rises, whereas coffee purchases decrease with higher income. This information can be useful for understanding consumer behavior and preferences as income changes.

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what is the income elasticity of demand for automobiles

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Concept explainers

Elasticity of Demand and Supply

The elasticity of demand and supply are two important concepts of microeconomics. The elasticity of demand measures the responsiveness of consumers’ demands to the price change, changes in income of consumers, and changes in the price of the related goods. Similarly, the elasticity of supply refers to the proportionate change in the quantity supplied due to the proportionate change in the price. In other words, it can be said that elasticity of supply measures how the quantity of supply changes when the price changes of that particular product.

Question

In Figure 5-2, what is the income elasticity of demand for automobiles (using the point elasticity formula)?

	a.	1/2
	b.	−1/2
	c.	2
	d.	−2
	e.	Approaching zero

**Figure 5-2: Relationship between Income and Quantity Purchased**

The table illustrates the quantities of three different goods—automobiles, coffee, and margarine—purchased at two different income levels: $25,000 and $50,000.

- **Income**: Indicates the annual income levels of consumers.

- **Quantity Purchased**: Reflects the number of units bought of each good corresponding to the specified income levels.

**Details of Goods Purchased:**

1. **Automobiles**:
- At an income of $25,000, 2 automobiles were purchased.
- At an income of $50,000, 3 automobiles were purchased.

2. **Coffee**:
- At an income of $25,000, 10 units were purchased.
- At an income of $50,000, 8 units were purchased.

3. **Margarine**:
- At an income of $25,000, 1 unit was purchased.
- At an income of $50,000, 3 units were purchased.

**Analysis**:

This table demonstrates how the quantity of goods purchased can vary with changes in income levels. Notice that the purchase of automobiles and margarine increases as income rises, whereas coffee purchases decrease with higher income. This information can be useful for understanding consumer behavior and preferences as income changes.

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