Consider an individual with an annual income of $50,000, who allocates this income as follows: $10,000 on
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Question:
Consider an individual with an annual income of $50,000, who allocates this income as follows: $10,000 on leisure activities, $20,000 on dining out, and $20,000 on medical expenses. The income elasticities of demand for these categories are provided as: leisure (1.0), meals (0.5), and medical care (1.5).
A. If this individual's income were to double, how would their spending in each of these categories change? Provide the new spending amounts.
B. Based on these changes, how does the proportion of their budget allocated to each category shift?
Expert Answer:
A To find out how the individuals spending in each category would change if their income were to double we can use the income elasticity of demand formula changeinquantitydemandedIncomeelasticityofdemandchangeinincomechange in quantity demandedIncomeelasticityofdemandchange in income Given Income elasticity of demand for ... View the full answer
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