The income elasticity of demand for haircuts is 1.5 and theincome elasticity of

Question

The income elasticity of demand for haircuts is 1.5 and theincome elasticity of demand fro food is 1.4. You take a weekend joband the income you have to spend on food and haircuts doubles. Ifthe price of food and haircuts remain the same will you double yourexpenditure on haircuts and double your expenditure on food? Explain why or why not The income elasticity of demand for haircuts is 1.5 and theincome elasticity of demand fro food is 1.4. You take a weekend joband the income you have to spend on food and haircuts doubles. Ifthe price of food and haircuts remain the same will you double yourexpenditure on haircuts and double your expenditure on food? Explain why or why not

Explanation / Answer

No, you won't. Changes in income match changes in quantity demanded if and only if the demand curve is unit elastic, i.e. income elasticity = 1. Since neither equals 1, you won't double your expenditure (quantity demanded) on haircuts or food.

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