Question

Vanessa gets a promotion that boosts her income by 30%. She used to buy 10 pints of Ben and Jerry's ice cream per month and now she buys 12 pints. Using the midpoint method, her income elasticity of demand for Ben and Jerry's is making it a(n) a, +0.45 ; necessity b. -0.33 ; inferior good c. +0.61 ; necessity d. +1.65 ; luxury e. +2.14 ; luxury

Answer 1

The income elasticity of demand for Ben and Jerry's ice cream is approximately +0.45.

Step-by-step explanation:

The income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in income. The midpoint method is used to calculate it. In this case, Vanessa's income increased by 30% and her quantity demanded of Ben and Jerry's ice cream increased from 10 pints to 12 pints. Using the formula:

Income elasticity of demand = ((Q2 - Q1) / ((Q1 + Q2) / 2)) / ((Y2 - Y1) / ((Y1 + Y2) / 2))

where Q1 = 10, Q2 = 12, Y1 = 1 and Y2 = 1.3, we can calculate the income elasticity of demand to be approximately +0.45.