For US Consumers, the Income Elasticity of Demand for Fruit Juice

question 117

Multiple Choice

For U.S. consumers, the income elasticity of demand for fruit juice is 1.1. If the economy enters a recession next year and consumer income declines by 2.5%, what is the expected change in the quantity of fruit juice demanded next year?

• A) -2.75%
• B) +2.75%
• C) -27.5%
• D) +27.5%

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Definitions:

Expected Utility

A concept in economics and finance that calculates the anticipated utility of different choices, taking into account the various possible outcomes and their probabilities.

Expected Utility Function

A mathematical representation of a decision-maker's preference over uncertain outcomes, emphasizing the expected level of satisfaction or value.

Probability

A numerical assessment between 0 and 1 indicating how probable it is for an event to take place.

Expected Value

The weighted average of all possible values of a random variable, with weights being their respective probabilities.