A 10 percent increase in income causes the quantity of orange juice demanded to increase from 19,200 to 20,800 gallons. The income elasticity of demand for orange juice is

A 10 percent increase in income causes the quantity of orange juice demanded to increase from 19,200 to 20,800 gallons. The income elasticity of demand for orange juice is

• A. 0.5
• B. 1.0
• C. 0.8
• D. 1.2

Answer: (C)

Income elasticity of demand measures how much the quantity demanded responds to a change in income. Here, income rises by 10% and orange juice purchases go from 19,200 to 20,800 gallons. The change in quantity is 1,600 gallons, so the percent change in quantity is 1,600/19,200 ≈ 0.0833, or about 8.3%. The percent change in income is 10%. Elasticity = 8.3% / 10% ≈ 0.83, which rounds to 0.8. Since the elasticity is positive but less than 1, orange juice is a normal good with inelastic income response—income goes up and quantity demanded goes up, but not in proportion to the income change. The other options would imply different levels of responsiveness: a smaller value (less than 1) would indicate even less responsiveness, 1.0 would be unitary responsiveness, and a value above 1.0 would indicate a more elastic response.

Income elasticity of demand measures how much the quantity demanded responds to a change in income. Here, income rises by 10% and orange juice purchases go from 19,200 to 20,800 gallons. The change in quantity is 1,600 gallons, so the percent change in quantity is 1,600/19,200 ≈ 0.0833, or about 8.3%. The percent change in income is 10%. Elasticity = 8.3% / 10% ≈ 0.83, which rounds to 0.8. Since the elasticity is positive but less than 1, orange juice is a normal good with inelastic income response—income goes up and quantity demanded goes up, but not in proportion to the income change. The other options would imply different levels of responsiveness: a smaller value (less than 1) would indicate even less responsiveness, 1.0 would be unitary responsiveness, and a value above 1.0 would indicate a more elastic response.