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Becky eats out at Macaroni Grill 3 times per year
Becky eats out at Macaroni Grill 3 times per year. She receives a raise from $31,000 to $33,500 and decides to eat out at Macaroni Grill 5 times per year. Calculate her income elasticity of demand for eating at Macaroni Grill.
Expert Solution
Becky's income elasticity of demand is 6.45, which is calculated as the percent change in quantity demanded divided by the percent change in income. It can be described by the following formula:
Consider in the initial time period, Becky earns an income of 31,000 and demanded 3 visits to the grill. In the next time period she earned 33,500 and demanded 5 visits. We can now plug this into the above formula to get the following:
showing that the good is quite elastic.
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