Question

Last year Stephen purchased 60 pounds of potatoes to feed his family of four when his income was $30,000. This year his income fell to $20,000, and he purchased 70 pounds of potatoes. Using the midpoint method, one decimal place, and the negative sign if necessary, Stephen's income elasticity for potatoes is _____.

Answer 1

income elasticity = -0.385

Interpretation:

if income increase then potatoes demand decrease

if income drops, potatoes demand increase.

-40 x -.385 = 15.4 increase

60 x 15.4 = 69.24 ≅ 70

Step-by-step explanation:

midpoint formula:

`(q_2-q_1)/(((q_1+q_2)/(2))) /(p_1-p_2)/(((p_2+p_1)/(2)))`

q1 60

q2 70

p1 30,000

p2 20,000

`(70-60)/((60+70)/(2)) /(20,000-30,000)/((20,000+30,000)/(2))`

`(10)/((130)/(2)) /(-10,000)/((50,000)/(2))`

`0.153846154 / -0.4`

income elasticity = -0.385