Question

Use the midpoint method when applicable to calculate the price elasticity of demand.

Answer 1

Answer:

Follows are the solution to the given points:

Explanation:

In point a:

This business of plastic containers is increasing its Lunchbox Product Signature price around $3.00 and $4.00.   The volumes produced consequently declined around 20,000 to 15,000.

$\text{Price elasticity} = \frac{\frac{15000-20000}{(\frac{15000+20000}{2})}}{\frac{4-3}{(4+\frac{3}{2})}}$

                        $=\frac{\frac{-5000}{(\frac{35000}{2})}}{\frac{1}{(\frac{7}{2})}}\\\\=\frac{\frac{-5000}{17500}}{\frac{1}{3.6}}\\\\=\frac{\frac{-50}{175}}{\frac{1}{3.6}}\\\\= \frac{-0.2857}{0.2857} \\\\ =-1$

The price elasticity also becomes unitary

In point b:

U.S. economic theory states that the elasticity of fuel demand is 0.5 because prices would be less than 1 and so are non-elastic.

In point c:

The capital Metro agrees and add $2.00 to $2.21 also for bus fares. Consequently, with an average of 70,000 drivers a days to both a daily average 61,000 drivers, its passenger numbers who take the bus in Austin falls.

$\text{Price elasticity} = \frac{\frac{61000-70000}{(61000+ \frac{70000}{2})}}{ \frac{2.21-2}{(2.21+\frac{2}{2})}}$

                        $= \frac{\frac{-9000}{(61000+ 35000)}}{ \frac{0.21}{(2.21+1)}} \\\\= \frac{\frac{-9000}{(96000)}}{ \frac{0.21}{(3.21)}} \\\\= \frac{\frac{-9}{(96)}}{ \frac{0.21}{(3.21)}} \\\\= \frac{-0.1374}{0.099} \\\\ = -1.38$

The value being higher than 1 is elastic.