Macroeconomics

Learn the toughest concepts covered in your Macroeconomics class with step-by-step video tutorials and practice problems.

Elasticity

Elasticity and the Midpoint Method

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The Midpoint Method

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Problem

The price of widgets is currently $44 with a quantity demanded of 200,000 units. If the price decreases to $36, the quantity demanded increases 280,000. Using the midpoint method, what is the price elasticity of demand? Is demand elastic or inelastic?

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Problem

The price of a good rises from $8 to $12, and the quantity demanded falls from 110 to 90 units. Using the midpoint method, what is the price elasticity of demand?

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Problem

Assume that the price elasticity of demand for cigarettes is 0.4. If a pack of cigarettes currently costs $6 and the government aims to decrease smoking by 20 percent, by how much should it increase the price?