Question

Lauren's salary decreases from $ 37,000 to $ 30,000 . She decides to reduce the number of outfits she purchases each year from 20 to 19.
Use the midpoint method to calculate the income elasticity of demand for new outfits.

Answer 1

Answer:

E=-4.0746

Explanation:

Using the midpoint method, Lauren's income elasticity of demand for new outfits is determined by the change in income multiplied by the average number of outfits, divided by the change in the number of outfits multiplied by the average income:

$E=\frac{\Delta I*O_{avg}}{\Delta O*I_{avg}}\\E=\frac{(37,000-30,000)*\frac{20+19}{2}}{(19-20)*\frac{37,000+30,000}{2}}\\E=-4.0746$

Her income elasticity of demand for new outfits is -4.0746.