Question

Using the midpoint method, calculate the price elasticity of demand for Gondwanaland gosum berries. Explain what this price elasticity of demand means

Answer 1

Answer:

The data of the question is this:

YEAR    Gosum Berries   Price Per

             Demand             Barrel

107        700                     $70

108        600                    $84

Explanation:

The Mid-Point Formula to calculate the Price Elasticity of Demand is:

[ (Q2 - Q1) / (Q2 + Q1) / 2 ] this divided by [ (P2 - P1) / (P2 + P1) / 2 ]

where Q is demand, and P is price

Now, we plug the amounts into the formulas:

[ (600 - 700) / (600 + 700) / 2 ] = -0.038

[ (84 - 70) / (84 + 70) / 2 ] = 0.045

-0.038 / 0.045 = -0.844

Thus, the elasticity of demand for gosum berries, using the midpoint method, is -0.844, however, economists use absolute values for elasticities, so -0.844 becomes 0.844

An elasticity of demand of 0.844, which is less than one, indicates inelastic demand. This means that the quantity demanded for gosum berries falls less in proportion to raises in price.

In order worlds, the coefficient of elasticity of demand measures the price sensitivity of consumer demand for a particular good or service.