Question

For each scenario, calculate the income elasticity of demand, determine whether the good is inferior or normal, and classify the good's income elasticity. When calculating the income elasticity of demand, use the midpoint formula. Round your answers to the nearest hundredth. Sylvia's annual salary increases from $102,750 to $109,500, and she decides to increase the number of vacations she takes year from three to four. Calculate her income elasticity of demand for vacations. Vacations are an) income elasticity vacations As a good, vacations are Blake eats two bags of generic potato chips each day, and does not purchase any name-brand chips. Blake's hourly wage increases from $9 to $15, and he decides to eat one name brand bag and one generic-brand bag each day. Calculate Blake's income elasticity of demand for generic notato chins

Answer 1

Income elasticity = 4.49
(Ey = $\frac{Q2-Q1}{Y2-Y1}\times \frac{Y2+Y1}{Q2+Q1} = \frac{4-3}{109,500-102,750}\times \frac{109,500+102,750}{4+3}$

)

1 х 212, 250 7 4.49 6750

normal
(As Ey is positive, so, it is a normal good.)

luxury
(As Ey is > 1, so it is a luxury good.)