Question

The price of a large pizza decreased from $22.00 to $18.00. As a result, the quantity demanded of skateboards increased from 230.00 to 250.00

Part 1: Using the midpoint formula, what is the percentage change observed for the price of a large pizza? Give your answer to two decimal places.

Part 2: Using the midpoint formula, what is the percentage change observed for the quantity demanded of skateboards? Give your answer to two decimal places.

Part 3: What is the cross-price elasticity of demand between pizzas and skateboards? Give your answer to two decimal places.

Answer 1

Price of pizza	Quantity demanded of skateboards
P1 =22	Q1=230
P2=18	Q2=250

Part 1: Using midpoint formula.

percentage change in price of pizza = (P2 -P1) / [(P2 +P1)/2] *100

percentage change in price of pizza = (18 -22)/[(18+22)/2] *100

percentage change in price of pizza = -0.2 *100

percentage change in price of pizza = -20

Part 2: Using midpoint formula

percentage change in quantity demanded of skateboards = (Q2 - Q1) /[(Q2+Q1)/2]*100

percentage change in quantity demanded of skateboards = (250 - 230) / [(250 + 230) /2]*100

percentage change in quantity demanded of skateboards = 0.0833 * 100

percentage change in quantity demanded of skateboards = 8.33

Part 3:

Cross price elasticity of demand between pizza and skateboards = (percentage change in quantity demanded of skateboards) / (Percentage change in price of Pizza)

Cross price elasticity of demand between pizza and skateboards = (8.33) / (-20)

Cross price elasticity of demand between pizza and skateboards = -0.4165

Cross price elasticity of demand between pizza and skateboards = -0.42