Question

Becky eats out at macaroni grill 3 times per year. she receives a raise from $31,900 to $33,500 and decides to eat out at macaroni grill 5 times per year. calculate her income elasticity of demand for eating at macaroni grill.

Answer 1

Answer: Becky's income elasticity of demand for eating at Macaroni grill is 10.22.

We calculate income elasticity of demand with the following formula:

$\mathbf{\eta _{I}= \frac{(Q_{1}-Q_{0})/(Q_{1}+Q_{0})}{(I_{1}-I_{0})/(I_{1}+I_{0})}}$

where

η is the Greek letter eta that is used to denote elasticity of demand

Subscript I is used to denote Income elasticity

Q₁ is the quantity consumed after change in income

Q₀ is the quantity consumed before in income

I₁ is the new income

I₀ is the old income

Substituting the values we get,

$\mathbf{\eta _{I}= \frac{(5-3)/(5+3)}{(33500-31900)/(33500+31900)}}$

$\mathbf{\eta _{I}= \frac{(2)/(8)}{(1600)/(65400)}}$

$\mathbf{\eta _{I}= \frac{0.25}{0.024464832} = 10.21875}$