Answer:
-3.28
Explanation:
The question is to calculate Blake's income elasticity of demand for generic potato chips
The formula for this is as follows
[tex]\frac{Q2-Q1}{Q2+Q1/2}[/tex] ÷ [tex]\frac{M2-M1}{M2+M1}/2[/tex]
For this equation; Q2 will be the final demand while Q1 represents the initial demand. Also , M2 represents the final outcome and M1 is the initial income
First, since Blake decides to stop generic chips completely, it means his demand for generic chips has reduced. The demand function therefore becomes:
Q2-Q1= 0-2=-2
Also, since his income has increased for $8 to $15 which is $7 (M2-M1) increase, the following can be said
His average demand of chips = Q2-Q1/2= 0+2/2=1
His average income, M2-M1/2 8+15/2= $11.5
The Income elasticity of demand for Blake
= -2/1 ÷ 7/11.5
= -3.28