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 using the formula: \( E_i = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}} \).
2. Calculate the percentage change in quantity demanded. The initial quantity demanded is 24,000 and the new quantity demanded is 26,000. Use the formula: \( \% \text{ change in quantity demanded} = \frac{\text{new quantity} - \text{initial quantity}}{\text{initial quantity}} \times 100 \).
3. Calculate the percentage change in income. The problem states that there is a 12% increase in consumer income, so \( \% \text{ change in income} = 12\% \).
4. Substitute the values obtained into the income elasticity of demand formula: \( E_i = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}} \).
5. Interpret the result: A positive income elasticity of demand indicates that orange juice is a normal good, meaning that as consumer income increases, the demand for orange juice also increases.