Tonya consumes 40 steaks a year when her yearly income is $40,000. After her income falls to $35,000 a year, she consumes only 35 steaks a year. Calculate her income elasticity of demand for steaks.

1

Explanation:

Tonya consumes 40 steaks a year when her monthly income was $40,000

After her income drops to $35,000 she consumes 35 steaks

The first step is the calculate the percentage change in the quantity of steaks demanded

= 40-35/40 × 100

= 5/40 ×100

= 0.125 ×100

= 12.5

The percentage change in income can be calculated as follows

= $40,000-$35,000/$40,000 × 100

= $5,000/$40,000 × 100

= 0.125 × 100

= 12.5

Therefore the income elasticity of demand for steaks can be calculated as follows

= 0.125/0.125

= 1

Hence the income elasticity for the demand of steaks is 1

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