Now we're going to use what's called the midpoint method to calculate elasticity, which is going to give us a consistent answer whether we're raising the price or decreasing the price. So I've got our updated formula for our price elasticity of demand when we're using the midpoint formula, which is what we're going to use from now on, but don't let this trip you up. There's a lot going on there, but this is still just percentage change in quantity demanded divided by percentage change in price. Okay. We're still just dealing with that same formula. We're just changing how we calculate the percentage change in each situation. So if you remember with percentage change, before we had the original value in the denominator, right? It was the change divided by the original value. Well instead of the original value, now we're going to use this average sum of quantities divided by 2. This is the average quantity instead of the original quantity and over here we're going to use the average p
4. Elasticity
Elasticity and the Midpoint Method
4. Elasticity
Elasticity and the Midpoint Method - Video Tutorials & Practice Problems
1
concept
The Midpoint Method
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10mPlay a video:
Video transcript
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Problem
ProblemThe 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?
Video duration:
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3
Problem
ProblemAssume 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?
A
$1.20
B
$2.40
C
$3.00
D
$4.80