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. When Alex’s income was $2,500, he bought 6 bagels and 14 donuts a month. Now his income is $6,000 and he buys 10 bagels and 8 donuts a month. Calculate Alex’s income elasticity of demand for (a) bagels and (b) donuts. And explain their meanings.

Respuesta :

The income elasticity of demand for bagels is 0.48. Bagels is a normal good. Income elasticity of demand for donuts is -0.31. Donuts is an inferior goods.

What is income elasticity of demand?

Income elasticity of demand measures how the quantity demanded of a good changes when there is a change in income. Inferior goods have a negative income elasticity. Normal goods have a positive income elasticity.

Income elasticity of demand = percentage change in quantity demanded / percentage change in income

Income elasticity of demand for bagels:

percentage change in quantity demanded = (10 /6) - 1 = 0.667 = 66.7%

percentage change in income = ($6000 / $2500) - 1 = 1.4 = 140%

Income elasticity of demand = 66.7 / 140 = 0.48

Income elasticity of demand for donuts:

percentage change in quantity demanded = (8/14) - 1 = -0.429 = 42.9%

percentage change in income = ($6000 / $2500) - 1 = 1.4 = 140%

Income elasticity of demand = -42.9/ 140 = -0.31

To learn more about income elasticity, please check: https://brainly.com/question/26580369

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