Blake eats two bags of potato chips each day. blake's hourly wage increases from $7 to $15 , and he decides to stop eating generic chips and instead eats a name-brand potato chip. use the midpoint method to calculate blake's income elasticity of demand for generic potato chips. round your answer to two decimal places.

The income elasticity of demand for generic potato chips is -2.75 and as the income elasticity of demand for generic potato chips is negative, generic potato chips is an inferior good

Explanation:

With increase in income of Blake from $7(I1) hourly wage to $15(I2) hourly wage, quantity demanded for generic potato chips falls from 2 bags (Q1) to 0 (Q2).

Income elasticity of demand for generic potato chips = (Q2-Q1)/[(Q1+Q2)/2] / (I2-I1)/[(I1+I2)/2]

= (0-2)/[(0+2)/2]/ ($15-$7)/[($15+$7)/2]

= (-2/1) / (8/11)

= -11/4

= - 2.75

Therefore, The income elasticity of demand for generic potato chips is -2.75 and as the income elasticity of demand for generic potato chips is negative, generic potato chips is an inferior good.

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