Question

Sylvia's annual salary increases from $100,500 to $109,500. Sylvia decides to increase the number of vacations she takes per year from three to four. Use the midpoint method to calculate her income elasticity of demand for vacations. Round your answer to two decimal places.

Answer 1

Answer:

Ei=3.33

Normal good

Explanation:

SOLUTION

Using the midpoint method to calculate her income elasticity

Ei=(Q2-Q1) /(I2-I1)*(I2+I1)/(Q2+Q1)

Q2=4 I2=109,500

Q1=3 I1=100,500

Ei=(4-3)/(109,500 - 100,500) *(109,500+100,500)/(4+3)

Ei=1/9000*210,000/7

Ei=3.33333333

Approximate to two decimal places

Ei=3.33