Question

Consider two markets the market for motorcycle and the market for pancakes the initial equilbrium for both market is the same the equilibrium price is $5.50 and the quantity is 31.0 when the price is $ 11.75 the quantity supplied of motorcycle is 51.0 and the quantity supplies of pancakes is 109.0 for simplicity of analysis the demand for both goods is the same Using the midpiont formula calculate the elasticity of supply for pancakes please round to two deciaml places

Answer 1

To calculate the midpoint elasticity, simply use the midpoint formula: {(Q1-Q0)/ [(Q1+Q0)]/2} / {(P1-P0)/ [(P1+P0)]/2

Where P0 and Q0 are price and quantity at the initial moment and P1 and Q1 are price and quantity at the second moment.

Note: The prices are the same for both products and the initial quantity (Q0) as well. What changes is Q1.

pancakes market:

{(109-31) / [(109+31)/2] / {(11,75-5,50)/ [(11,75+5,5)]/2}

[ 78/ (140/2)] / [6,25/ (17,25/2)]

[78/70] / [6,25/8,65]

1,11/0,72 = 1,48 (elastic)

motorcycle market:

{(51-31) / [(51+31)/2] / {(11,75-5,50)/ [(11,75+5,5)]/2}

[ 20/ (82/2)] / [6,25/ (17,25/2)]

[20/41]/ [6,25/8,65]

0,48/0,72 = 0,66 (inelastic)

Conclusion: After the price increase, the quantities demanded for each product varied. The elasticity of demand for pancakes has proved elastic (very price sensitive) while the elasticity of demand for pancakes has been inelastic (not very sensitive to price changes).

Note: Demand elasticity is considered elastic when the value is greater than 1 and inelastic when less than 1.