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ankoles
11 days ago
6

Blake eats two bags of generic potato chips each day, and does not purchase any name-brand chips. Blake's hourly wage increases

from $8 to $15 , and he decides to eat one name-brand bag and one generic-brand bag each day. Calculate Blake's income elasticity of demand for generic potato chips.
Business
1 answer:
harina [3.5K]11 days ago
6 0
The elasticity is 1.08. Explanation: Elasticity is a concept in microeconomics that gauges the responsiveness of demand to changes in income. The elasticity of income is calculated using the formula that divides the observed change in quantity (Q) by the change in income (P). Elasticity = [▲ Q /Q]/ [▲ P/P]. Initially, Blake consumed 2 bags of generic potatoes with an income of $8. After an increase to $15, he opted for one name-brand and one generic bag daily. Thus, E = [(2-1)/1] / [(15-8)/15] leads to E = 0.5/ 0.46 = 1.08. When elasticity exceeds 1, it implies that demand is elastic in relation to income, meaning that an increase in income reduces the demand for generic potatoes, while a decrease in income boosts demand. Hence, Blake’s demand for generic potatoes is elastic with respect to income changes.
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