How do you calculate the income elasticity of demand when the demand for a good drops from 50 units to 45…

Question

How do you calculate the income elasticity of demand when the demand for a good drops from 50 units to 45 units given an increase in income from 200 to 400 give me a breakdown of how to calulate the answer and get it out

ScanSolve AI Tutor · Accepted Answer

To calculate the income elasticity of demand, we use the midpoint formula.

Calculate the percentage change in quantity demanded using the midpoint formula.
$\text{Percentage Change in Quantity} = \frac{Q_2 - Q_1}{(Q_2 + Q_1)/2}$
Given $Q_1 = 50$ units and $Q_2 = 45$ units:
$\text{Percentage Change in Quantity} = \frac{45 - 50}{(45 + 50)/2} = \frac{-5}{95/2} = \frac{-5}{47.5} \approx -0.10526$
Calculate the percentage change in income using the midpoint formula.
$\text{Percentage Change in Income} = \frac{Y_2 - Y_1}{(Y_2 + Y_1)/2}$
Given Y_1 = \200 $and$ Y_2 = $400$:
$\text{Percentage Change in Income} = \frac{400 - 200}{(400 + 200)/2} = \frac{200}{600/2} = \frac{200}{300} = \frac{2}{3} \approx 0.66667$
Calculate the income elasticity of demand (YED).
$YED = \frac{\text{Percentage Change in Quantity}}{\text{Percentage Change in Income}}$ $YED = \frac{-0.10526}{0.66667} \approx -0.15789$
The income elasticity of demand is approximately:
$-0.16$

How do you calculate the income elasticity of demand when the demand for a good drops from 50 units to 45 units given an increase in income from 200 to 400 give me a breakdown of how to calulate the answer and get it out

Answer

Step-by-step solution

Calculate the percentage change in quantity demanded using the midpoint formula.

Calculate the percentage change in income using the midpoint formula.

Calculate the income elasticity of demand (YED).

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