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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 places

This good is:

a. a normal good and income-elastic.
b. a normal good and income-inelastic.
c. an inferior good.

Respuesta :

Answer:

b. A normal good and income - elastic

Explanation:

Solution

Using the midpoint method

change in Qd        ÷          change in income

old Qd + New Qd          old income + New income  

          2                                         2

change in Qd  = 4 - 3 = 1

change in income = 109,500 - 102,750 = 67,500

going by the formula

1/3.5  ÷ 67,500/106,125

1/3.5 x 106,125/ 67,500

= 0.45

The income elasticity of demand is 0.45 meaning it is inelastic because it is less than one.

And the good is a normal good because the demand for it increases as income increases.  

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