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Lauren's salary decreases from $40,000 to $30,000. She decides to reduce the number of outfits she purchases each year from 20 to 19 . Use the midpoint method to calculate the income elasticity of demand for new outfits. Round your answer to two decimal places.

Respuesta :

Answer:

0.179

Explanation:

% change in demand using midpoint method = (Q₂ - Q₁) / ( Q₂ + Q₁) /2 = (19 - 20) / ( 20 + 19) / 2 = -5.128 %

% change in income using midpoint method = ( I₂ - I₁ ) / ( I₂ + I₁) / 2 = ($ 30000- $ 40000) / ( $ 70000 / 2) = - 28.5714 %

Income elasticity of demand =  -5.128 % / - 28.5714 %  = 0.179

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