Question

Becky only eats out at Macaroni Grill and eats out three times per month. She receives a raise from $33,200 to $33,500 and decides to eat out five times per month. Use the midpoint method to calculate the monthly income elasticity of demand for eating out. Round your answer to two decimal places.

Answer 1

Answer:

55.58

Explanation:

Data provided in the question;

Initial demand per month, Q₁ = 3

Final demand per month, Q₂ = 5

Initial price, P₁ = $33,200

Final price, P₂ = $33,500

Now,

elasticity of demand using midpoint method is calculated as :

= $\frac{\textup{percent change in demand}}{\textup{percent change in supply}}$

or

= $\frac{\frac{Q_2-Q_1}{\frac{Q_1+Q_2}{2}}}{\frac{P_2-P_1}{\frac{P_1+P_2}{2}}}$

on substituting the respective values, we get

= $\frac{\frac{5-3}{\frac{5+3}{2}}}{\frac{33,500-33,200}{\frac{33,200+33,500}{2}}}$

or

= $\frac{\frac{2}{4}}{\frac{300}{\frac{66,700}{2}}}$

or

= $\frac{0.5}{\frac{300}{33,350}}$

= 55.58