Question

Last year Stephen purchased 60 pounds of potatoes to feed his family of four when his income was $30,000. This year his income fell to $20,000, and he purchased 70 pounds of potatoes. Using the midpoint method, one decimal place, and the negative sign if necessary, Stephen's income elasticity for potatoes is _____.

Answer 1

Answer:

income elasticity = -0.385

Interpretation:

if income increase then potatoes demand decrease

if income drops, potatoes demand increase.

-40 x -.385 = 15.4 increase

60 x 15.4 = 69.24 ≅ 70

Explanation:

midpoint formula:

$\frac{q_2-q_1}{(\frac{q_1+q_2}{2})} \div\frac{p_1-p_2}{(\frac{p_2+p_1}{2})}$

q1 60

q2 70

p1 30,000

p2 20,000

$\frac{70-60}{\frac{60+70}{2}} \div\frac{20,000-30,000}{\frac{20,000+30,000}{2}}$

$\frac{10}{\frac{130}{2}} \div\frac{-10,000}{\frac{50,000}{2}}$

$0.153846154 \div -0.4$

income elasticity = -0.385