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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