ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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inelastic, since the price elasticity of supply is equal to .91.
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inelastic, since the price elasticity of supply is equal to 1.1.
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elastic, since the price elasticity of supply is equal to 0.91.
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elastic, since the price elasticity of supply is equal to 1.1.
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Detailed explanation-1: -Usually, when we calculate percentage changes, we divide the change by the initial value and multiply the result by 100. Unlike that, the midpoint formula divides the change by the average value (i.e., the midpoint) of the initial and final value.
Detailed explanation-2: -Midpoint Qd = (Qd1 + Qd2) / 2 = (40 + 60) / 2 = 50. Midpoint Price = (P1 + P2) / 2 = (10 + 8) / 2 = 9. % change in qty demanded = (60 – 40) / 50 = 0.4. % change in price = (8 – 10) / 9 =-0.22.
Detailed explanation-3: -Using the midpoint method to calculate elasticity The advantage of the midpoint method is that we get the same elasticity between two price points whether there is a price increase or decrease. This is because the formula uses the same base for both cases.
Detailed explanation-4: -Price elasticity of demand = (Q2-Q1) / [(Q2 + Q1) / 2] / (P2-P1) / [(P2 + P1) / 2] Point elasticity = [(new Q-initial Q) / initial Q] / [(initial P-new P) / initial P] (100-500) / [(100 + 500) / 2] / (10-1) / [(10 + 1) / 2] =-0.81. More items •15-Feb-2021