Last year, Damaris bought 8 burgers when her income was $43,000. This year, her income is $54,000, and she purchased 9 burgers. Holding other factors constant and using the midpoint method, it follows that Damaris's income elasticity of demand is about
A)1.93, and Damaris regards burgers as inferior goods.
B)1.93, and Damaris regards burgers as normal goods.
C)0.52, and Damaris regards burgers as inferior goods.
D)0.52, and Damaris regards burgers as normal goods.

Question

Quizplus · Accepted Answer

The income elasticity of demand (IED) is calculated using the formula: IED = [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(I2 - I1) / ((I2 + I1) / 2)], where Q1 and Q2 are the initial and final quantities demanded, and I1 and I2 are the initial and final incomes. Plugging in the given values: IED = [(9 - 8) / ((9 + 8) / 2)] / [($54,000 - $43,000) / (($54,000 + $43,000) / 2)] = (1 / 8.5) / ($11,000 / $48,500) ≈ 0.52. Since the IED is positive and less than 1, it indicates that burgers are a normal good for Damaris, but not a luxury good (which would require an IED > 1).

Last Year, Damaris Bought 8 Burgers When Her Income Was