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Suppose the income elasticity of demand of watches is 0.7. If the median income in the United States rises by 10%, then the demand for watches should:1. increase by 0.7%.2. decrease by 7%.3. increase by 7%.4. increase by 70%.

Respuesta :

Answer:

Option (3) is correct.

Explanation:

Given that,

Income elasticity of demand of watches = 0.7

Median income in the United States rises by 10%

Income elasticity = Percentage change in quantity demanded ÷ Percentage change in income

0.7 = Percentage change in demand for watches ÷ 10

Percentage change in demand for watches = 7%

Therefore, the demand for watches increase by 7%.

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