Blake eats two bags of potato chips each day. Blake's hourly wage increases from $8 to $15, and he decides to stop eating generic chips and instead eats a name brand potato chip. Use the midpoint method to calculate Blake's income elasticity of demand for generic potato chips Round your answer to 2 decimal places. The good isa. a normal good and income-elasticb. a normal good and income-inelasticc. an inferior good

The correct answer is option (c) good is an inferior good.

Explanation:

Solution

Given that:

Blake's hourly wage increases form  = $8 to $15

Now,

By using the midpoint method we compute Blake's income elasticity of demand for generic potato chips which is given below:

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

Thus,

Y₁ =8

Y₂ = 15

Q₁ = 2

Q₂ = 0

So,

Income Ed =23/2x - 2/7

= -46/14

=- 3.28

Therefore, the increase in income decreases demand of generic potato chips. this shows negative income effect which implies that good is inferior in nature.

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