Calculating Income Elasticity

In the 2:00 section we did not have the opportunity to discuss the formula for calculating income elasticity using the midterm formula.

The formula is simple in that you take the formula we used for the price elasticity of demand and change P to I. So for any income quantity pairs (I1, Q1) and (I2, Q2)

EI =

(Q2 - Q1) (I2 + I1)
--------- X --------
(Q2 + Q1) (I2 - I1)

Make sure you keep track of any negative values. (Although for the homework I think they are all "normal" goods.)

NOTE: Problem 2 on the back side of the paper relates to elasticity of supply. We were unable to get to that discussion by the end of class on Tuesday. We will cover that material on Thursday and, if possible, cover those problems in class. If we are unable to get to discuss problem 2 in class, the homework may be carried over to be due the following class. This is TBD depending on how classes go on Thursday. Although you do not have to complete problem 2 for Thursday, it could be a good learning experience to try to read the relevant material and try to solve them.

And for the 2:00 class, I'm sorry for the disruption on Thursday. Let's all make sure we are aware of the Civility Code and the note on class disruptions, p. 36 of the 2009-2010 Undergraduate Catalog of Indiana University of Pennsylvania.