Asked by Juana Jacal on Jul 08, 2024
Verified
Suppose at $10 the quantity demanded is 100.When the price falls to $8,the quantity demanded increases to 130.The price elasticity of demand (using the midpoint formula) between $10 and $8 is approximately:
A) 1.17.
B) 1.50.
C) 0.85.
D) 1.00.
Midpoint Formula
A method used in economics and statistics to calculate the elasticity of a variable, or the percentage change in one variable in response to a percentage change in another.
Price Elasticity
A measure of how much the quantity demanded or supplied of a good changes in response to a change in its price, indicating sensitivity to price changes.
Quantity Demanded
The entire quantity of a product or service that buyers are prepared and have the capacity to buy at a given price point.
- Cement your understanding of the concept and the estimation procedure for the price elasticity of demand.
- Adopt the midpoint strategy to measure the demand's price elasticity concerning different products.
Verified Answer
AV
Antonio VecchioJul 12, 2024
Final Answer :
A
Explanation :
The midpoint formula for price elasticity of demand is: Ed=%ΔQD%ΔPE_d = \frac{\% \Delta QD}{\% \Delta P}Ed=%ΔP%ΔQD , where ΔQD\Delta QDΔQD is the change in quantity demanded and ΔP\Delta PΔP is the change in price. Using the midpoint formula, the change in quantity demanded is from 100 to 130, and the change in price is from $10 to $8. The midpoint for quantity is 100+1302=115\frac{100 + 130}{2} = 1152100+130=115 , and the midpoint for price is 10+82=9\frac{10 + 8}{2} = 9210+8=9 . Thus, %ΔQD=130−100115≈0.2609\% \Delta QD = \frac{130 - 100}{115} \approx 0.2609%ΔQD=115130−100≈0.2609 or 26.09%, and %ΔP=8−109≈−0.2222\% \Delta P = \frac{8 - 10}{9} \approx -0.2222%ΔP=98−10≈−0.2222 or -22.22%. Therefore, Ed=0.2609−0.2222≈−1.17E_d = \frac{0.2609}{-0.2222} \approx -1.17Ed=−0.22220.2609≈−1.17 . The elasticity is negative, indicating the inverse relationship between price and quantity demanded, but we often refer to the absolute value when discussing elasticity, making the correct answer approximately 1.17.
Learning Objectives
- Cement your understanding of the concept and the estimation procedure for the price elasticity of demand.
- Adopt the midpoint strategy to measure the demand's price elasticity concerning different products.