Question

Calculating the price elasticity of demand: A step-by-stepguideSuppose that during the past year, the price of a laptop computer rose from $2,950 to $3,110. During the same time period, consumer sales decreased from 468,000 to 296,000 laptops.Calculate the elasticity of demand between these two price–quantity combinations by using the following steps. After each step, complete the relevant part of the table with the appropriate answers. (Note: For decreases in price or quantity, enter values in the Change column with a minus sign.)Original New Average Change Percentage ChangeQuantity a. -45.03%
b. -22.51%
c. 222.09%Price a. 1,893.75% b. 5.28% c. 2.64%Step 1: Fill in the appropriate values for original quantity, new quantity, original price, and new price.Step 2: Calculate the average quantity by adding the original quantity and the new quantity, and then dividing by two. Do the same for the average price.Step 3: Calculate the change in quantity by subtracting the original quantity from the new quantity. Do the same for the change in price.Step 4: Calculate the percentage change in quantity demanded by dividing the change in quantity by the average quantity. Do the same to calculate the percentage change in price.Step 5: Calculate the price elasticity of demand by dividing the percentage change in quantity demanded by the percentage change in price, ignoring the negative sign.Using the midpoint method, the elasticity of demand for laptops is about
a. 0.12
b. 4.26
c. 8.53
d. 17.06

Answer 1

Answer:

original quantity = 468,000

Average quantity = 382,000

new quantity = 296,000

a. -45.03%

original price - $2,950

new price = $3,110

Average price = 3030

3. -172,000

$160

b. 5.28%

Explanation:

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.

Price elasticity of demand = midpoint change in quantity demanded / midpoint change in price  

Average quantity = (468,000 + 296,000) / 2 = 382,000

Average price = ($2,950  + $3,110) / 2 = 3030

Change in quantity = 296,000 - 468,000 = -172,000

Change in price = $3110 - $2950 = $160

percentage change in quantity demanded = (-172,000 /  382,000) x 100 = -0.4503 = -45.03%

percentage change in price = 160 / 3030 x 100 = 5.28%

Elasticity of demand = -45.03% / 5.28% = -8.53 = 8.53