ECO100Y5 Chapter 6: Elasticity - Ho

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% change in quantity demanded = (change in quantity demanded/initial quantity demanded) x 100. % change in price = (change in price/ initial price) x 100. Price elasticity of demand = (% change in quantity demanded / % change in price) Alternate way to calculate elasticities: midpoint method. The midpoint method is a technique for calculating the percentage change. In this approach, we calculate changes in a variable compared with the average, or midpoint, of the starting and final values. % change in x = (change in x/ average value of x) x 100. Where the average value of x is defined as: Avg value of x = (starting value of x + final value of x)/2. General formula for price elasticity of demand with two points when at point 1 the quantity demanded and price are (q1,p1); at point 2 they are (q2,p2), then the formula is:

Related Questions

Suppose that during the past year, the price of a laptop computer fell from $2,950 to $2,450. During the same time period, consumer sales increased from 430,000 to 619,000 laptops. Calculate the elasticity of demand between these two price–quantity combinations by using the following steps. After each step, complete the relevant part of the table with the appropriate answers. (Note: For decreases in price or quantity, enter values in the Change column with a minus sign.) Original New Average Change Percentage Change Quantity 36.03% Price -18.52% Step 1: Fill in the appropriate values for original quantity, new quantity, original price, and new price. Step 2: Calculate the average quantity by adding the original quantity and the new quantity, and then dividing by two. Do the same for the average price. Step 3: Calculate the change in quantity by subtracting the original quantity from the new quantity. Do the same for the change in price. Step 4: Calculate the percentage change in quantity demanded by dividing the change in quantity by the average quantity. Do the same to calculate the percentage change in price. Step 5: Calculate the price elasticity of demand by dividing the percentage change in quantity demanded by the percentage change in price, ignoring the negative sign. Using the midpoint method, the elasticity of demand for laptops is about .

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Calculating the price elasticity of demand - A step-by-step guide

Suppose that during the past year, the price of a laptop computer fell from $2,950 to $2,450. During the same time period, consumer sales increased from 430,000 to 619,000 laptops.

1. Calculate the elasticity of demand between these two price quantity combinations by using the following steps. After each step, complete the relevant part of the table with the appropriate answers. (Note: For decreases in price or quantity, enter values in the Change column with a minus sign.)

a. 36.03%

b. 18.02%

c. 277.51%

Price

a. -18.52%

b.-540%

c. -9.26%

Step 1: Fill in the appropriate values for original quantity, new quantity, original price, and new price.

Step 2: Calculate the average quantity by adding the original quantity and the new quantity, and then dividing by two. Do the same for the average price.

Step 3: Calculate the change in quantity by subtracting the original quantity from the new quantity. Do the same for the price change.

Step 4: Calculate the percentage change in quantity demanded by dividing the change in quantity by the average quantity. Do the same to calculate the percentage change in price.

Step 5: Calculate the price elasticity of demand by dividing the percentage change in quantity demanded by the percentage change in price, ignoring the negative sign.

2. Using the midpoint method, the elasticity of demand for laptops is about

a. 0.051

b. 0.97

c. 1.95

d. 3.89