Question

lake eats two bags of generic potato chips each day. Blake's hourly wage increases from $ 8 $8 to $ 15 $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

Price elasticity= -3.2856~-3.29

Since the negative is usually ignored elasticity is 3.29

Potato chips is an inferior good since Blake decide to stop eating it when he got an income raise.

Step-by-step explanation:

Price elasticity is defined as a measure of the responsiveness of quantity demanded to changes in price. As a rule as price increases the quantity demanded reduces, and vice versa.

The midpoint for potato chips is (2+0)/2= 1 bag

Change in potato = (New amount-old amount)/ midpoint of potato

Change in potato= (0-2)/1= -2

The midpoint for price= (8+15)/2= 11.5

Change in price= (new price-old price)/midpoint price

Change in price= (15-8)/11.5= 0.6087

Price elasticity= change in quantity/ change in price

Price elasticity= -2/0.6087

Price elasticity= -3.2856

Answer 2

-3.24

Step-by-step explanation:

Income-elasticity of demand is given as = % change in quantity demanded / % change in income.

Therefore, since Blake stopped eating generic chips, his change in demand of generic chips is given as

0-2 = 2.

Midpoint is (0-2)/2 = -1

Therefore, % change in quantity demanded for generic chips is given as zero, since Blake stopped taking it completely.

Blake's change in income is given as $8 to $15

% change in income = ($15-$8/$8)×100

7/8 × 100

% change in income = 87.5%

Midpoint of income is $8+$15/2 = $11.5

Income elasticity of demand for generic chips would be = -2/0.609 = -3.284 approximately -3.24