This economics question tests your understanding of economic models and analysis. The step-by-step answer below applies the relevant framework and explains the reasoning.
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here are the calculations for the income elasticity of demand for each interval: Calculate the income elasticity of demands. The formula for income elasticity of demand (E_y) is: E_y = ( Q)/( Y) × (Y)/(Q) Where: Q = Change in quantity demanded Y = Change in income Y = Original income Q = Original quantity demanded 1. When income increases from Rs. 200 to Rs. 240: Step 1: Identify the initial and final values. Initial Income (Y_1) = Rs. 200 Final Income (Y_2) = Rs. 240 Initial Quantity (Q_1) = 50 units Final Quantity (Q_2) = 80 units Step 2: Calculate the change in income ( Y) and change in quantity ( Q). Y = Y_2 - Y_1 = 240 - 200 = 40 Q = Q_2 - Q_1 = 80 - 50 = 30 Step 3: Apply the income elasticity of demand formula. E_y = ( Q)/( Y) × (Y_1)/(Q_1) E_y = (30)/(40) × (200)/(50) E_y = 0.75 × 4 E_y = 3 The income elasticity of demand is 3. 2. When income increases from Rs. 240 to Rs. 280: Step 1: Identify the initial and final values. Initial Income (Y_1) = Rs. 240 Final Income (Y_2) = Rs. 280 Initial Quantity (Q_1) = 80 units Final Quantity (Q_2) = 100 units Step 2: Calculate the change in income ( Y) and change in quantity ( Q). Y = Y_2 - Y_1 = 280 - 240 = 40 Q = Q_2 - Q_1 = 100 - 80 = 20 Step 3: Apply the income elasticity of demand formula. E_y = ( Q)/( Y) × (Y_1)/(Q_1) E_y = (20)/(40) × (240)/(80) E_y = 0.5 × 3 E_y = 1.5 The income elasticity of demand is 1.5. 3. When income increases from Rs. 280 to Rs. 320: Step 1: Identify the initial and final values. Initial Income (Y_1) = Rs. 280 Final Income (Y_2) = Rs. 320 Initial Quantity (Q_1) = 100 units Final Quantity (Q_2) = 110 units Step 2: Calculate the change in income ( Y) and change in quantity ( Q). Y = Y_2 - Y_1 = 320 - 280 = 40 Q = Q_2 - Q_1 = 110 - 100 = 10 Step 3: Apply the income elasticity of demand formula. E_y = ( Q)/( Y) × (Y_1)/(Q_1) E_y = (10)/(40) × (280)/(100) E_y = 0.25 × 2.8 E_y = 0.7 The income elasticity of demand is 0.7. What's next?