Question

Becky only eats out at Macaroni Grill, and she eats out three times per month. She receives a raise from $31,900 per year to $33,500 per year 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:

Price elasticity of demand =  10.21

Explanation:

Given:

Old income (P0) = $31,900

New income (P1) = $33,500

Old Quantity (Q0) = 3 times

New Quantity (Q1) = 5 times

Computation of Price elasticity of demand :

Midpoint method:

Price elasticity of demand =  

$\frac{\frac{Q1-Q0}{\frac{Q1+Q0}{2} } }{\frac{P1-P0}{\frac{P1+P0}{2} } } \\\frac{\frac{5-3}{\frac{5+3}{2} } }{\frac{33,500-31,900}{\frac{33,500+31,900}{2} } }\\\frac{\frac{2}{\frac{8}{2} } }{\frac{1600}{\frac{65400}{2} } }\\\frac{\frac{2}{4} }{\frac{1600}{32700} } }\\10.21$

Price elasticity of demand =  10.21