1. If there has been a 10% increase in Consumer income between two periods, what

Question

1. If there has been a 10% increase in Consumer income between two periods, what was the percentage change in demand for foreign travel? For tobacco products? For flour? (Hint use the income elasticity values in Table below.)

Estimated income elasticity of demand (E1) for selected commodities Commodity Income Elasticity Wine (canada) 2.29 Beer (U.S) 1.06 Cheese (U.K) 0.37 Chicken (U.S) 0.28 Potatoes (U.K) -0.32 Flour (U.S) -0.36 Electricity (Household (U.S) 1.94 European Cars (U.S) 1.93 Asian Cars (U.S) 1.65 Domestic Cars (U.S) 1.63 Gasoline (U.S) 1.2 Cigarettes (U.S) 0.5

Explanation / Answer

Elasticity = Percentage change in quantity demanded /Percentage change in income

for tobaccoo products consider cigarettes

0.5 = x/ 10

x= 5 %

for flour

-0.36 = x/10

x= -3.6 %

foreign travel consider wine canada

2.29 = x/10

x= 22.9 %

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