Question

The price of notebooks is $5, and at that price consumers demand 12 notebooks. If the price rises to $7, consumers will decrease quantity demanded to 4 notebooks. Using the midpoint formula, what is the price elasticity of demand for notebooks?

Answer 1

Answer:

3

Explanation:

We are asked to use the midpoint formula.

Here, instead of dividing the change in values by the old value as in the normal elasticity calculation, we use the average of the two.

Mathematically:

Price elasticity of demand according to midpoint formula is :

{Q2 - Q1 / (Q2 + Q1) ÷ 2] × 100%} ÷ {[P2 - P1/ (P2 + P1) ÷ 2] × 100}

Price changed from 5 to 7. The midpoint of 5 and 7 is the average = (5+7)/2 = 6

% change in price in this case is (7-5)/6 * 100 = 100/3 = 33.33%

% change in quantity:

We first find the average = (12+4)/2 = 16/2 = 8

% change = (4-12)/8 * 100 = -100%

The elasticity of demand is thus -100/33.33 = 3