Question

Sylvia's annual salary increases from $102,750 to $109,500. Sylvia decides to increase the number of vacation she takes from 3 to 4. Use the midpoint method to calculate her income elasticity of demand for vacations.Round your answer to two decimal placesThis good is:a. a normal good and income-elastic.b. a normal good and income-inelastic.c. an inferior good.

Answer 1

Answer:

Income elasticity of Demand is 4.51

a normal good and income-elastic

Explanation:

Percent change in quantity = [( q2- q1 ) / (( q2+q1) /2)]     *100

                                            =  (4-3)/ 4+3/2       *100

                                            =28.57%

Percent change in Income = [( y2- y1 ) / (( y2+y1) /2)]       *100

                                        = ($109,500- $102,750) /  $109,500- $102,750/2

                                        = 6.36%

YED= % change in QD / % change in y

      = 28.7% / 6.36%

      = 4.51

A normal good is a good that experiences an increase in its demand due to a rise in consumers' income. Demand for a good is elastic when a change in price has a relatively large effect on the quantity of the good demanded and elasticity value is greater than 1.