A twelve percent increase in consumer income has caused the quantity of orange juice demanded to increase from 24,000 to 26,000. The income elasticity of demand for orange juice is:

• A. 0.25
• B. 0.33
• C. 0.50
• D. 0.67

Answer: (D)

Verified step by step guidance

1. Understand the concept of income elasticity of demand, which measures how the quantity demanded of a good responds to a change in consumer income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income.
2. Calculate the percentage change in quantity demanded. The formula is: \( \frac{\text{New Quantity} - \text{Old Quantity}}{\text{Old Quantity}} \times 100 \). Substitute the given values: \( \frac{26,000 - 24,000}{24,000} \times 100 \).
3. Calculate the percentage change in income. The problem states a 12% increase in consumer income, so this value is directly given as 12%.
4. Use the formula for income elasticity of demand: \( E_d = \frac{\text{Percentage Change in Quantity Demanded}}{\text{Percentage Change in Income}} \). Substitute the values obtained from the previous steps.
5. Interpret the result: A positive income elasticity greater than zero indicates that orange juice is a normal good, meaning demand increases as income increases.