Using the midpoint method, calculate the price elasticity of demand of Good X using the following...
Using the midpoint method, calculate the price elasticity of demand of Good X using the following information: When the price of good X is $50, the quantity demanded of good X is 400 units. When the price of good X rises to $60, the quantity demanded of good X falls to 300 units.
The price elasticity of demand for good X = 0.64.
The price elasticity of demand for good X = 1.57.
Homework Answers
Ans.
Midpoint method to calculate price elasticity of demand is :
ed = [(Q2 - Q1) / (Q1 + Q2) /2] / [ (P2 - P1) / (P2 + P1) /2 ]
ed = [300 - 400 / (300+400) /2 ] / [ 60 - 50 / (60+50) / 2 ]
ed = [ -100 / (700) /2 ] / [ 10 / (110) /2]
ed = [ -100 / 350 ] / [ 10 / 55 ]
ed = [-100 / 350 ] * [55 / 10 ]
ed = -55 / 35
ed = 1.57
Thus, price elasticity of demand for good X = 1.57
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