Question

Becky eats out at macaroni grill 3 times per year. she receives a raise from $31,900 to $33,500 and decides to eat out at macaroni grill 5 times per year. calculate her income elasticity of demand for eating at macaroni grill.

Answer 1

Answer: Becky's income elasticity of demand for eating at Macaroni grill is 10.22.

We calculate income elasticity of demand with the following formula:

`\mathbf{\eta _(I)= ((Q_(1)-Q_(0))/(Q_(1)+Q_(0)))/((I_(1)-I_(0))/(I_(1)+I_(0)))}`

where

η is the Greek letter eta that is used to denote elasticity of demand

Subscript I is used to denote Income elasticity

Q₁ is the quantity consumed after change in income

Q₀ is the quantity consumed before in income

I₁ is the new income

I₀ is the old income

Substituting the values we get,

`\mathbf{\eta _(I)= ((5-3)/(5+3))/((33500-31900)/(33500+31900))}`

`\mathbf{\eta _(I)= ((2)/(8))/((1600)/(65400))}`

`\mathbf{\eta _(I)= (0.25)/(0.024464832) = 10.21875}`