Question

2. Calculating the price elasticity of demand - A step-by-stepguide

Suppose that during the past year, the price of a laptop computer rose from $2,100 to $2,550. During the same time period, consumer sales decreased from 470,000 to 363,000 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.

	Original	New	Average	Change	Percentage Change
Quantity
Price

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 ______ (0.66, 0.75, 1.33,2.65) .

Answer 1

Step I: Original price 2,100, New price - 2,550 Original Quantity 470,000, New Price 363,000 Step II Calculate average quantity by adding the original quantity and the new quantity, and then dividing by two (470,000+363.000) 2 Thus, average quantity = 416.500 (2.100+2.550) Average Price 2,325 Step III: Calculate the change in quantity by subtracting the original quantity from the new quantity:

Change in quantity 470,000-416,500 -107,000 Change in price 2,550-2,100 450 Step IV: Calculate the percentage change in quantity demanded by dividing the change in quantity by the average quantity Percentage change in quantity demanded 107,000/416,500 0.2569 Percentage change in price 450/2,325 -0.19 Now, calculate the price elasticity of demand by dividing the percentage change in quantity demanded by the percentage change in price:

0.256 0.193 Price elasticity of demand- Original 2100 470000 New Average 2325 416500 ercentage change -0.193548387 0.256902761 Change P -450 107000 Price elasticity of demand Price 2550 363000 uantitv 1.327330932 Thus, the price elasticity of demand is 1 .3 Thus, the option C is correct

Answer 2

	Original	New	Average	Change	Percentage Change
Quantity	470000	363000	416500	-107000	-0.26
Price	2100	2550	2325	450	0.19

The elasticity of demand for laptops =( Percentage change in Quantity demanded / Percentage change in Price)

The elasticity of demand for laptops = (-0.26 / 0.19)

The elasticity of demand for laptops = -1.36

Using the midpoint method, the elasticity of demand for laptops is about -1.36