MGEA01H3 Chapter Notes - Chapter 6: Midpoint Method, Demand Curve, Normal Good

• School: UTSC
• Department: Economics for Management Studies
• Course: MGEA01H3
• Professor: Michael H O

Document Summary

Price elasticity of demand: is the ratio of the percentage change in the price as we move along the demand curve. Given the demand is normally downward slopping, when interpreting the price elasticity of demand, we only look at the absolute value. The larger the price elasticity of demand, the more responsive the quantity demanded is to the price. An alternative way to calculate elasticities: the midpoint method. Midpoint method: is a technique for calculating the percentage change. In this approach we calculate changes with the average, midpoint, of the starting and final values. Average value of x = (starting value of x + final value of x) / 2. % change in x = (change in x / average value of x) x 100. % change in quantity demanded = [change in quantity demanded / (initial quantity demanded/2)] x 100. % change in price = [change in price / (initial price/2)] x 100.