Question

Blake eats two bags of potato chips each day. When Blake's hourly wage increases from $7 to $15, he decides to stop eating generic potato chips and starts eating 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.income elasticity of demand for generic potato chips:For Blake, generic potato chips arean inferior good.a luxury good.a normal good.

Answer 1

-2.75 and inferior good

Step-by-step explanation:

The computation of the income elasticity of demand using the mid point method is shown below:

The computation of the price elasticity of demand using mid point formula is shown below:

= (change in quantity demanded ÷ average of quantity demanded) ÷ (percentage change in income ÷ average of income)

where,

Change in quantity demanded is

= Q2 - Q1

= 0 - 2

= -2

And, average of quantity demanded would be

= (0 + 2) ÷ 2

= 1

Change in income is

= M2 - M1

= $15 - $7

= $8

And, average of income is

= ($7 + $15) ÷ 2

= 11

So, after solving this, the income elasticity of demand is -2.75

And, the goods is inferior good as it has negative elasticity of demand