Answer:
For Bagels = 1.33
For Donuts = -1.33
Explanation:
Using the midpoint method, Alex's percentage change in income is given by the difference in income divided by the average income:
[tex]\%I =\frac{\$4,000-\$2,000}{\frac{\$4,000+\$2,000}{2}}\\\%I=66.67\%[/tex]
Alex's percentage change in demand for both bagels and donuts is given by the difference in the quantity consumed divided by the average consumption:
[tex]\%B =\frac{10-6}{\frac{10+6}{2}}\\\%B=50.00\%\\\%D =\frac{9-15}{\frac{15+9}{2}}\\\%D=-50.00\%[/tex]
Alex's income elasticity of demand for bagels and donuts, respectively, is:
[tex]E_B=\frac{\%I}{\%B}=\frac{66.67\%}{50\%} \\E_B=1.33\\\\E_D=\frac{\%I}{\%D}=\frac{66.67\%}{-50\%} \\E_D=-1.33[/tex]
His income elasticity of demand for bagels is 1.33, while for Donuts it is -1.33.
