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30 May, 19:02

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%.

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  1. 30 May, 20:09
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    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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