When Frank's income rises from $29,000 to $34,000 per year, he increases his purchases of tomatoes from 20 pounds to 28 pounds per year. What is Frank's income elasticity of demand for tomatoes? (Use the midpoint formula
) According to Frank, are tomatoes an inferior or normal good?
Percentage change in quantity demanded = (28-20)/24 = 8/24 = 33.3
Percentage change in income = ($34,000 - $29,000)/$31,500 = 5,000/31,500 = 15.9 . Therefore, income elasticity of demand = (33.3/15.9) = 2.1
Because Frank increased his demand for tomatoes when his income increased, he views tomatoes as a normal good. Therefore, his income elasticity of demand for tomatoes is positive.
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