Calculating Income Elasticity of Demand for Patagonia Pullovers

Calculating Income Elasticity of Demand

The income elasticity of demand for Patagonia pullovers, computed using the midpoint formula and given changes in average household income and demand, is approximately 0.76.

Explanation:

Income elasticity of demand measures how responsive the quantity demanded of a good is to changes in consumers' income. In this scenario, with average household income increasing from $38,000 to $60,000 and the demand for Patagonia pullovers rising from 430 to 501, we can use the midpoint formula to determine the income elasticity of demand.

The midpoint formula for income elasticity of demand is (ΔQ/Q_avg) / (ΔI/I_avg), where Q is the quantity demanded and I is income.

By plugging in the given values, the calculation for income elasticity of demand for Patagonia pullovers is ((501-430)/ ((501+430)/2)) / ((60-38)/ ((60+38)/2)), resulting in approximately 0.76. This value indicates that the demand for these pullovers is moderately responsive to changes in income.