Use the following table to compute the income elasticity of thedemand for air tr

Question

Use the following table to compute the income elasticity of thedemand for air travel:

  Income                             Vacations                                                                           Income Elasticity

   (peryear)                     (peryear)                                                                             of demand

a$20,000                            0                                             

b$50,000                            1                                             b toc                              _________

c$100,000                          3                                             c tod                               _________

d$200,000                          5                                             

Explanation / Answer

Income elasticity of demand is: Change in % demand/ Change in% income. Thus for b to c, income increased by 100%. [(100,000-50,000/50,000)*100%]                         demandincrease by 200% [(3-1/1)*100%] Thus income elasticity is 2. From c to d, income increased by 100%                     demandincreased by 66.67% Thus income elasticity is .6667 (or .67 depending onyour professor's preference for rounding)

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