1. **Problem Statement:** Calculate the income elasticity of demand when the price is $40 using the midpoint method. 2. **Formula:** Income elasticity of demand is given by $$E_I = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}}$$ Using the midpoint method, percentage changes are calculated as: $$\% \text{ change in quantity} = \frac{Q_2 - Q_1}{(Q_1 + Q_2)/2} \times 100$$ $$\% \text{ change in income} = \frac{I_2 - I_1}{(I_1 + I_2)/2} \times 100$$ 3. **Given Data:** - Price = $40 - Quantity demanded at $50,000 income, $Q_1 = 20$ - Quantity demanded at $60,000 income, $Q_2 = 30$ - Income $I_1 = 50,000$ - Income $I_2 = 60,000$ 4. **Calculate percentage change in quantity demanded:** $$\% \Delta Q = \frac{30 - 20}{(20 + 30)/2} \times 100 = \frac{10}{25} \times 100 = 40\%$$ 5. **Calculate percentage change in income:** $$\% \Delta I = \frac{60,000 - 50,000}{(50,000 + 60,000)/2} \times 100 = \frac{10,000}{55,000} \times 100 \approx 18.18\%$$ 6. **Calculate income elasticity:** $$E_I = \frac{40}{18.18} \approx 2.2$$ 7. **Interpretation:** The income elasticity of demand at price $40 is approximately 2.2, which means demand is elastic with respect to income. The given answer 2.5 is close but slightly higher than the calculated value using the midpoint method. **Final answer:** Income elasticity of demand at price $40 is approximately $2.2$.