Asked by Jamilla Cason on Apr 24, 2024
Verified
Last year, Damaris bought 8 burgers when her income was $43,000. This year, her income is $54,000, and she purchased 9 burgers. Holding other factors constant and using the midpoint method, it follows that Damaris's income elasticity of demand is about
A) 1.93, and Damaris regards burgers as inferior goods.
B) 1.93, and Damaris regards burgers as normal goods.
C) 0.52, and Damaris regards burgers as inferior goods.
D) 0.52, and Damaris regards burgers as normal goods.
Income Elasticity of Demand
A measure of how much the quantity demanded of a good responds to a change in consumers' income, holding all else constant.
Midpoint Method
A technique used in economics to calculate the percentage change between two points by dividing the change by the average of the initial and final values.
Normal Goods
Goods for which demand increases as the income of individuals increases, and vice versa.
- Master the idea of income elasticity of demand and its application in the differentiation between normal and inferior goods.
- Determine and elucidate the income elasticity of demand employing the midpoint formula.
- Assess the features of commodities by evaluating their income elasticity metrics.
Verified Answer
QP
Quinn Penelope Rosenbloom5 days ago
Final Answer :
D
Explanation :
The income elasticity of demand (IED) is calculated using the formula: IED = [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(I2 - I1) / ((I2 + I1) / 2)], where Q1 and Q2 are the initial and final quantities demanded, and I1 and I2 are the initial and final incomes. Plugging in the given values: IED = [(9 - 8) / ((9 + 8) / 2)] / [($54,000 - $43,000) / (($54,000 + $43,000) / 2)] = (1 / 8.5) / ($11,000 / $48,500) ≈ 0.52. Since the IED is positive and less than 1, it indicates that burgers are a normal good for Damaris, but not a luxury good (which would require an IED > 1).
Learning Objectives
- Master the idea of income elasticity of demand and its application in the differentiation between normal and inferior goods.
- Determine and elucidate the income elasticity of demand employing the midpoint formula.
- Assess the features of commodities by evaluating their income elasticity metrics.