Question

Last year, Sheila bought 6 pairs of shoes when her income was $40,000. This year, her income is $50,000 and she purchased 10 pairs of shoes. Holding other factors constant, calculate Sheila's income elasticity for shoes, and identify on what type of goods she considers these shoes to be. Note: If you are unable to see the video, you can click on the wheel-star looking button and change the bandwidth information a. The income elasticity is -2.25, and Sheila considers the shoes as a normal good. b. The income elasticity is -2.25, and Sheila considers the shoes as an inferior good. c. The income elasticity is 2.25, and Sheila considers the shoes as a normal good. d. The income elasticity is 2.25, and Sheila considers the shoes as an inferior good.

Answer 1

The income elasticity of demand for Sheila's shoe purchases is 2.67, indicating that she considers shoes to be a normal good. The options provided did not include the correct calculation; however, the closest to the correct answer is option (c) with the correct elasticity value being 2.67. This positive elasticity value shows that Sheila's quantity demanded for shoes increases as her income increases.

Step-by-step explanation:

To calculate Sheila's income elasticity of demand for shoes, we use the formula:

Elasticity = (Percentage Change in Quantity Demanded) / (Percentage Change in Income)

Using the given information:

Last year, Sheila bought 6 pairs of shoes (Q1).

This year, Sheila bought 10 pairs of shoes (Q2).

Last year, her income was $40,000 (I1).

This year, her income is $50,000 (I2).

First we find the percentage change in quantity demanded:

((Q2 - Q1) / Q1) * 100 = ((10 - 6) / 6) * 100 = (4 / 6) * 100 ≈ 66.67%

Then we calculate the percentage change in income:

((I2 - I1) / I1) * 100 = (($50,000 - $40,000) / $40,000) * 100 = ($10,000 / $40,000) * 100 = 25%

Now we calculate the elasticity:

Elasticity = 66.67% / 25% = 2.67

Since the income elasticity of demand is positive, this indicates that shoes are a normal good for Sheila. Therefore, the correct answer is not provided in the options given, and if forced to pick from the provided choices, we would likely consider option (c), with the correct calculation being 2.67 rather than 2.25.