ECON 160 Study Guide - Quiz Guide: Demand Curve, Midpoint Method
Document Summary
Midpoint method: the endpoint method computes percent change compared to the starting value, e. g. if price rises from to the percent change in price is computed as a percent of . The percent change using the midpoint method would be 50% because is 50% of . Unlike the price elasticity of demand, which is always expressed as a positive number, the income elasticity can be either positive or negative. Depending on the nature of the good, an increase or decrease in income can cause an increase or decrease in the quantity demanded. If eincome >0 then an increase in income increases demand and the good is normal. If eincome <0 then an increase in income decreases demand and the good is inferior. Cross price elasticity is computed using the formula where a and b are the two related goods. Percentages can be computed using the endpoint or the midpoint method.
