If the income elasticity of demand is +2 and income rises by 20%, what will be the new sales volume given the initial sales were 5,000 units?

Explanation

With an income elasticity of +2 and a 20% increase in income, sales will increase by 2 × 20% = 40%. Therefore, new sales = 5,000 × (1 + 0.40) = 7,000 units.