A recent study of the effects of income on demand for health care evaluated the effects of job changes, including job loss, unemployment compensation, and salary increases on the demand for healthcare. The study found that when income dropped by 2%, the demand for health services dropped 0.5%. Another recent study analyzed these effects by comparing the demand for health care across families at different income levels in the United States. The second study found that among families with annual incomes of $60,000, the demand for health care was approximately 0.75 times the demand among families with annual incomes of $80,000.

a. What is the formula for calculating income elasticity of demand?

b. What is the income elasticity of demand implied by the first study?

c. What is the income elasticity of demand implied by the second study?

d. If these estimates are different, how would you explain these differences?