Sylvia's annual salary increases from $100,000 to $109,500, and she decides to increase the number of vacations she takes per year from three to four.
Calculate her income elasticity of demand for vacations.

income elasticity of demand for vacations = (change in the number of vacations ÷ average vacations) ÷ (change in annual salary ÷ average annual salary) .......................1

here

change in vacations is = 4 - 3

change in vacations = 1

and

average vacations will be = [tex]\frac{4+3}{2}[/tex]

average vacations = 3.5

so

here change in annual salary will be

change in annual salary = 109,500 - 100,000

change in annual salary = 9,500

and

average annual salary will be

average annual salary = [tex]\frac{109500 + 100,000}{2}[/tex]

average annual salary = 104750

so

now put all value in equation 1 we get

Income elasticity of demand = [tex]\frac{\frac{1}{3.5}}{\frac{9500}{104750}}[/tex]

Income elasticity of demand = 3.150

Sylvia's annual salary increases from $100,000 to $109,500, and she decides to increase the number of vacations she takes per year from three to four. Calculate her income elasticity of demand for vacations.

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Sylvia's annual salary increases from $100,000 to $109,500, and she decides to increase the number of vacations she takes per year from three to four.
Calculate her income elasticity of demand for vacations.