ECON1131 Chapter Notes - Chapter 6: Midpoint Method, Demand Curve, Inferior Good
Document Summary
Price elasticity of demand: ratio of the percent change in quantity demanded to the percent change in price as we move along the demand curve. % change in quantity demanded = (change in qd/initial qd)*100. % change in price = (change in price/initial price)*100. Price elasticity of demand = % change in qd / % change in price. Law of demand says demand curve is downward sloping, so price and qd move in opposite directions: price elasticity of demand always negative. An alternative way to calculate elasticity"s: the midpoint method. Assumed negative (do not need to put in negative sign) Price elasticity of demand compares the percent change in quantity demanded with the percent change in price. Midpoint method: calculate changes in a variable compared with the average or midpoint of the starting and final values: compare changes in quantity demanded with the average of quantity demanded, price elasticity demanded = ((q2-q1)/((q1+q2)/2) / ((p2-p1)/((p1+p2)/2)
