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

Respuesta :

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