Question

Becky only eats out at Macaroni Grill and eats out 3 times per month. She receives a raise fro $31,900 to $33,500 and decided to eat out 5 times per month. Use the midpoint method to calculate the monthly income elasticity of demand for eating out.
This good is

A. A normal good and income elastic.
B. A normal good and income in-elastic
C. An inferior good

Answer 1

Answer:

Since elasticity is 6.4, a positive figure,it is normal good and the fact that it is greater than one means it is elastic,hence option A is correct

Explanation:

The formula for income elasticity of demand is given as:

/(new quantity-old quantity)//(old price+new price)/2)/(New income-Old income)/(old income+new income)/2)

New income=$33,000

Old income=$31,900

New quantity =5 times

Old quantity=3 times

Hence=(5-3)/(3+5)/2)/(33500-31900)/(31900+33500)/2)

Elasticity=6.45