Question

Becky only eats out at Macaroni Grill and eats out three times per month. She receives a raise from $31,000 to $33,500 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.income elasticity of demand:This good isan inferior good.a luxury good.a normal good.

Answer 1

Answer:

6.45 and luxury good

Explanation:

The computation of the income elasticity of demand using the 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

= 5 - 3

= 2

And, average of quantity demanded is

= (5 + 3) ÷ 2

= 4

Change in income is

= P2 - P1

= $33,500 - $31,000

= $2,500

And, average of price would be

= ($33,500 + $31,000) ÷ 2

= $32,250

So, after solving this, the income elasticity of demand is 6.45 and it represent the luxury good as it is greater than one