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Suppose you are the manager of a grocery store. The average income of your customers has...

Suppose you are the manager of a grocery store. The average income of your customers has increased by 10%. You want to adjust your purchases of organic chicken from suppliers considering this fact. Your market research consultant estimates the income elasticity of demand for organic chicken in the area you serve at 1.5. Given this information, how should you adjust your purchases of organic chicken? (Indicate the percentage change in the quantity of organic chicken you order, positive if you increase your purchases and negative if you decrease them.)

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Answer #1

Income elasticity of the good = % change in the quantity / % change in the income.

1.5 = (x) / 10.

As the income has increased by 10% the manger will increase the quantity purchased by 15% (x = 1.5 x 10).

If the quantity of the chicken purchased by the store is increased by 15% then the increased demand will be met by the store.

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