Question

Suppose the price for an Lyft ride in Austin, TX decreases from $15 to $12 causing the quantity of rides demanded to increase from 1000 to 1600. Using the midpoint method, the price elasticity of demand for an Lyft ride is ________.

Answer 1

Answer:

Midpoint value of price elasticity of demand = -2.07

Explanation:

We know,

Midpoint value of price elasticity = $\frac{(Q_{2} - Q_{1})/[(Q_{2} + Q_{1})/2] }{(P_{2} - P_{1})/[(P_{2} + P_{1})/2] }$

Given,

Original Price, $P_{1}$ = $15

New Price, $P_{2}$ = $12

Original Quantity demanded, $Q_{1}$ = 1,000 units

New Quantity demanded, $Q_{2}$ = 1,600 units

Putting the value in the above midpoint formula, we can get

Midpoint value of price elasticity = $\frac{(1,600 - 1,000)/[(1,600 + 1,000)/2]}{(12-15)/[(12+15)/2]}$

Midpoint value of price elasticity = $\frac{600/1,300}{-3/13.5}$

Midpoint value of price elasticity = $\frac{0.46}{-0.22}$

Midpoint value of price elasticity of demand = -2.07