To analyze whether Joe’s demand for pizza is price elastic, we need to consider his spending patterns as his income changes, while keeping the price of pizza constant.
Initially, when Joe’s income is $100, he spends $20 on pizza, which means he buys 20% of his income worth of pizza. When Joe’s income increases to $110, he spends $25 on pizza, now accounting for 22.73% of his income. This increase in expenditure on pizza as his income rises suggests that pizza may be seen as a normal good for Joe; he buys more of it when he has more income.
However, to determine whether the demand for pizza is price elastic, we should look at how much the quantity demanded changes in relation to a change in income, rather than price since prices are constant in this scenario. Elasticity in the context of income means how sensitive the quantity demanded is relative to changes in income.
With Joe spending more on pizza as his income increases, we could infer that his demand is responsive to income changes. However, this does not directly indicate price elasticity unless we see the quantity Joe buys change significantly with a change in pizza prices.
In conclusion, while Joe’s behavior reflects that he buys more pizza as his income increases, it does not necessarily imply that his demand is price elastic, as we lack information about how demand would change in response to price adjustments. We need to analyze changes in quantity bought due to changes in price to determine price elasticity.