Question

8. Problems and Applications Q8 Suppose subway ridership in New York City declined by 4.3 percent after a fare increase of 25 cents to $1.50. Using the midpoint method, an estimate of the price elasticity of demand for subway rides is .

Answer 1

Answer:

-0.23

Explanation:

in this case we need to use the formulas for elasticity

mid point elasticity = [  (Q2-Q1)/(Q2+(Q1/2))  ] ÷ [ (P2-P1)/(P2+(P1/2)) ]

elasticity of demand =  percentaje change  in quantity demanded / percentaje change in price

where: P1 = Original price level and P2= new price level

so we have.....

mid point elasticity = [ (1.50 - 1.25) / (1.50 + (1.25/2)) ]

mid point elasticity = (0.25/1.375)

mid point elasticity = 0.18 *100%

mid point elasticity = 18%

then....

elasticity of demand =  -4.3% / 18%

elasticity of demand = -0.23

if the value of the elasticity demand is grater that 1  we said that the demand is elastic  but in this case the value is less than 1 (-0.23) so the demand is inelastic.