Question

Figure: The Demand Curve Figure: The Demand Curve Price 3104 Quantity Use Figure: The Demand Curve. By the midpoint method, the price elasticity of demand between $6 and $7 is approximately 1.86. 0.19. 1.00 5.40.

Answer 1

1. by mid point method :

E_d = [(Qd₂ – Qd₁) / midpoint Qd] ÷ [(P₂ – P₁) / midpoint P]

Midpoint Qd = (Qd₁ + Qd₂) / 2 = (4 + 3) / 2 = 3.5

Midpoint Price = (P₁ + P₂) / 2 = (6+ 7) / 2 = 6.5

% change in qty demanded = (4 – 3) / 3.5 = 0.28

% change in price = (7 – 6) / 6.5 = 0.15

Arc E_d = 0.28 / 0.15 = 1.86 (a)

2. b) an elasticity value greater than 1 shows that demand is highly elastic which means that a small change in price will lead to a bigger change in quantity demanded of that product.

3. a) the demand of necessary goods like medicines is price inelastic, that it is less than 1. the demand of necessary goods is not bothered by it's demand and price has no effect on it.