Question

Using the midpoints 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.

Answer 1

Answer:

E = | -1.55 |

The demand for good X is elastic.

Explanation:

Elasticity is a microeconomic concept that aims to measure the sensitivity of demand in the face of price changes. When calculating elasticity is a result greater than 1 in modulus, demand is said to be elastic (price sensitive). When the value is less than 1, in modules, demand is inelastic - little price sensitive.

The calculation of elasticity by the midpoint consists of using the following formula:

E = {(q1-q0) / [(q1 + q0) / 2] / (p1-p0) / [(p1 + p0) / 2]}

Where:

p0 = starting price

p1 = final price

q0 = initial quantity

q1 = final quantity

E = elasticity

Applying the values in the formula:

E = (300-400) / [(300 + 400) / 2] / (60-50) / [(60 + 50) / 2]}

E = (-100/350) / (10/55) =

E = -0.28 / 0.18

E = | -1.55 |

The demand is elastic.