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.
