Question 5 15 Map For each calculation, use the midpoint formula. Round your ans

Question

Question 5 15 Map For each calculation, use the midpoint formula. Round your answers to the nearest hundredth. ncome Elasticity of Demand Normal or Inferior Good? Sylvia's annual salary increases from S100,500 to $109,500, Number Normal Good and she decides to increase the number of vacations she takes per year from 3 to 4. Calculate her income elasticity of Income-elastic, Inelastic, or N/A? 3.16 demand for vacations. ncome-Inelastic Blake eats two bags of generic potato chips each day, not Normal or Inferior Good? buying any name brand chips. Blake's hourly wage increases Number ferior Good from S8.75 to $15, and he decides to eat one name brand 1.27 ncome-elastic, Inelastic, or NA? bag and one generic brand each day. Calculate Blake's income elasticity of demand for generic potato chips. ncome-El astic Becky eats out at Macaroni Grill 3 times per year. She Number Normal or Inferior Good? receives a raise from $31,000 to $33,500 and decides to eat ferior Good out at Macaroni Grill 5 times per year. Calculate her income 32.25 elasticity of demand for eating at Macaroni Grill Income Elastic, Inelastic, or N/A? Income-Elastic Lauren's salary decreases from $34,000 to $30,000. She Normal or Inferior Good? Number decides to reduce the number of outfits she purchases each Inferior Good ear from 20 to 19. Calculate her income elasticity of demand .45 or new outfits. Income-elastic, Inelastic, or NIA? NA Normal Good Inferior Good Income-Elastic) Income-lnelastc CNIA

Explanation / Answer

1.

Income elasticity of demand (midpoint) = [(Q2 – Q1)/{(Q1+Q2)/2}] / [(I2 – I1)/{(I1+I2)/2}]

                                                                             = [(4 – 3)/{(3+4)/2}] / [(109,500 – 100,500)/{(100,500 + 109,500)/2}]

                                                                             = (1/3.5) / (9,000/105,000)

                                                                             = 3.33

This is a normal good, since the income elasticity is positive.

Here income elasticity is income-elastic, since 3.33 > 1.

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