The market demand for wheat is Q = 100 - 2p + 1pb + 2Y. If the price of wheat, p, is $2, and the price of barley, pb, is $3, and income, Y, is $1000. Then what is the income elasticity of wheat?

0.95

Explanation:

Given that,

Market demand for wheat: Q = 100 - 2p + 1pb + 2Y

price of wheat, p = $2

price of barley, pb = $3

Income, Y = $1000

Q = 100 - 2p + 1pb + 2Y

= 100 - (2 * 2) + (1 * 3) + (2 * 1,000)

= 100 - 4 + 3 + 2,000

= 2,099

Differentiating Q with respect to Y,

dQ/dY = 2

Income elasticity of wheat:

= (dQ/dY) * (Y : Q)

= 2 * (1,000 : 2,099)

= 0.95