This question is asking to calculate the income elasticity of demand using the midpoint method.

Formula for Income Elasticity of Demand:

$\text{Income Elasticity of Demand} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}}$

To apply the midpoint method, we use the following formula: $\text{Income Elasticity} = \frac{\left( \frac{Q_2 - Q_1}{(Q_2 + Q_1)/2} \right)}{\left( \frac{I_2 - I_1}{(I_2 + I_1)/2} \right)}$ Where:

• $Q_1$ = Initial quantity of generic potato chips Blake eats (2 bags/day)
• $Q_2$ = Final quantity of generic potato chips Blake eats (0 bags/day, as he stopped eating them)
• $I_1$ = Initial income ($8/hour)
• $I_2$ = Final income ($15/hour)

Step-by-Step Calculation:

1. Percentage change in quantity demanded: $Q_1 = 2, \quad Q_2 = 0$ Using the midpoint formula for quantity: $\frac{Q_2 - Q_1}{(Q_2 + Q_1)/2} = \frac{0 - 2}{(0 + 2)/2} = \frac{-2}{1} = -2$

2. Percentage change in income: $I_1 = 8, \quad I_2 = 15$ Using the midpoint formula for income: $\frac{I_2 - I_1}{(I_2 + I_1)/2} = \frac{15 - 8}{(15 + 8)/2} = \frac{7}{11.5} \approx 0.6087$

3. Income Elasticity Calculation: $\text{Income Elasticity} = \frac{-2}{0.6087} \approx -3.29$

Final Answer:

Blake's income elasticity of demand for generic potato chips is approximately -3.29.

Interpretation:

This good is likely an inferior good, as Blake's demand for generic chips decreases when his income increases.

Do you have any questions or want further details? Here are some related questions you might consider:

1. What does a negative income elasticity signify about the type of good?
2. How does the midpoint method differ from other elasticity calculations?
3. Can you calculate income elasticity for normal goods in the same way?
4. How would the calculation change if Blake's consumption decreased but not to zero?
5. How does income elasticity affect consumer behavior across different income levels?

Tip: When interpreting elasticity, keep in mind whether the good is considered a necessity or a luxury, as this will influence its elasticity.