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Income elasticity
Average income in one city of families with school-aged children is $20,000. The community spends $4,000 per student on public education. The community then receives an unrestricted grant (i.e. they can spend it however they like) from the state amounting to $2,000 per family. Given that the income elasticity of demand for expenditures on education is estimated to be +0.80, how much of an increase in educational expenditures per pupil can be expected to result from the grant?
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