Explain in your own words what information the income elasticity of demand provides. Suppose consumers experience an increase in income. If the income elasticity of demand is equal to 1.6, what will happen to the demand for new cars? As a result of the increase in income, holding other things constant, what will happen to new car prices. Suppose consumers experience an increase in income. If the income elasticity of demand is equal to -1.6, what will happen to the demand for used cars? As a result, holding other things constant, what will happen to the price of used cars?

Income elasticity of demand measures the responsiveness in quantity demanded of a commodity to a…

Answered: Suppose consumers experience an…

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter20: Elasticity: Demand And Supply

Section: Chapter Questions

Problem 13E: Using the following equation for the demand for a good or service, calculate the price elasticity of...

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Explain in your own words what information the income elasticity of demand provides.

Suppose consumers experience an increase in income. If the income elasticity of demand is equal to 1.6, what will happen to the demand for new cars? As a result of the increase in income, holding other things constant, what will happen to new car prices.
Suppose consumers experience an increase in income. If the income elasticity of demand is equal to -1.6, what will happen to the demand for used cars? As a result, holding other things constant, what will happen to the price of used cars?

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