Joan's income has just risen from $940 per week to $1,060 per week. As a result, she decides to purchase 12 percent more lettuce per week. The income elasticity of Joan's demand for lettuce is

Joan's income has just risen from $940 per week to $1,060 per week. As a result, she decides to purchase 12 percent more lettuce per week. The income elasticity of Joan's demand for lettuce is

• A. 0.90.
• B. 1.00.
• C. 1.33.
• D. 0.75.

Answer: (B)

Income elasticity of demand measures how much the quantity demanded responds to a change in income. It’s the ratio of the percentage change in quantity to the percentage change in income. Here, Joan’s income rises from 940 to 1060, a $120 increase. Using the midpoint method to get a symmetric percent change, the percentage change in income is 120 divided by the average of the two incomes, which is (1060 + 940)/2 = 1000. So the income change is 120/1000 = 0.12, or 12%. The quantity of lettuce purchased rises by 12 percent. Therefore, elasticity = 12% / 12% = 1.0. This means lettuce demand responds proportionally to income changes, indicating unit elastic demand with respect to income. (Using the initial-value base would give a slightly different figure, but the midpoint calculation yields the unit elastic result shown.)

Income elasticity of demand measures how much the quantity demanded responds to a change in income. It’s the ratio of the percentage change in quantity to the percentage change in income. Here, Joan’s income rises from 940 to 1060, a $120 increase. Using the midpoint method to get a symmetric percent change, the percentage change in income is 120 divided by the average of the two incomes, which is (1060 + 940)/2 = 1000. So the income change is 120/1000 = 0.12, or 12%. The quantity of lettuce purchased rises by 12 percent. Therefore, elasticity = 12% / 12% = 1.0. This means lettuce demand responds proportionally to income changes, indicating unit elastic demand with respect to income. (Using the initial-value base would give a slightly different figure, but the midpoint calculation yields the unit elastic result shown.)