Question

Blake eats two bags of potato chips each day. Blake's hourly wage increases from $8 to $15 , and he decides to stop eating generic chips and instead eats a name-brand potato chip. Use the midpoint method to calculate Blake's income elasticity of demand for generic potato chips. Round your answer to two decimal places.

Answer 1

Answer:

E = 1.09

Step-by-step explanation:

Elasticity measures the sensitivity of demand with changes in income.

Elasticity of Income has the formula:

[Change in Demand/Demand]/[Change in Income/Income]

So, now, we have:

D_0 = 2

D_1 = 1

I_0 = 8

I_1 = 15

Now, Elasticity (E) is:

E = [(1-2)/(1+2)]/[(15-8)/(15+8)]

E = [1/3]/[7/23]

E = 1.09