Question

If your income goes down by 15 percent and you cut back on your manicures by 25 percent, then your demand for manicures is (LO4) a) income elastic b) income inelastic c) income elastic and income inelastic d) neither income elastic nor income inelastic

Short answer

The correct answer based on the calculation is: a) income elastic

Step-by-step solution

Calculate Income Elasticity of Demand

To calculate income elasticity of demand, use the following formula: $IncomeElasticityofDemand=\frac{PercentageChangeinQuantityDemanded}{PercentageChangeinIncome}$ We are given: - Percentage Change in Quantity Demanded: -25% - Percentage Change in Income: -15% Plug the given values into the formula: $IncomeElasticityofDemand=\frac{-25}{-15}$

Simplify the expression

To simplify the expression, divide -25 by -15 using basic algebra: $IncomeElasticityofDemand=\frac{-25}{-15}=1.66$

Interpret the result

Now, we need to interpret the calculated income elasticity of demand: - If income elasticity of demand > 1, the demand is income elastic - If 0 < income elasticity of demand < 1, the demand is income inelastic - If income elasticity of demand = 0, the demand is neither income elastic nor income inelastic Since the income elasticity of demand is calculated to be 1.66, the demand for manicures is income elastic.

Answer

The correct answer based on the calculation is: a) income elastic