There are several ways of Önding out the price elasticity of demand (\"); depend

Question

There are several ways of Önding out the price elasticity of demand ("); depending on the type of data. (a) Percentage change: i. What is the formula? ii. Suppose P increased from 100 to 120 and QD went down from 60 to 50: Using this method, Önd out j"j : iii. Suppose P decreased from 120 to 100 and QD increased from 50 to 60: Using this method, Önd out j"j : (b) Mid-point: i. What is the formula? ii. Suppose P increased from 100 to 120 and QD went down from 60 to 50: Using this method, Önd out j"j :

Explanation / Answer

a) Percentage change formula for elasticity = Percentage chamge in Quantity/ Percentage change in Price = (Qd/P)*(P/Qd)

ii) P = 120-100 = 20, Qd = 50-60 = -10,

e = (-10/20)*(100/60) =-0.833

iii) P = 100-120 = -20, Qd = 60-50 = 10,

e = (10/-20)*(120/50) = -1.2

b) Mid point:

Q2-Q1 = (50-60) = -10

(Q1+Q2)/2 = (50+60)/2 = 55

(P1+P2)/2 = (100+120)/2 = 110

e = (-10/55)*(110/20) = -1

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