Question

Suppose that during the past year, the price of a laptop computer fell from $2,100 to $1,820. During the same time period, consumer sales increased from 429,000 to 530,000 laptops.
Calculate the elasticity of demand between these two price-quantity combinations by using the following steps. After each step, complete the relevant part of the table with the appropriate answers. (Note: For decreases in price or quantity, enter values in the Change column with a minus sign.)
Original New Average Change Percentage Change
Quantity
Price
Step 1: Fill in the appropriate values for original quantity, new quantity, original price, and new price.
Step 2: Calculate the average quantity by adding the original quantity and the new quantity, and then dividing by two. Do the same for the average price.
Step 3: Calculate the change in quantity by subtracting the original quantity from the new quantity. Do the same for the change in price.
Step 4: Calculate the percentage change in quantity demanded by dividing the change in quantity by the average quantity. Do the same to calculate the percentage change in price.
Step 5: Calculate the price elasticity of demand by dividing the percentage change in quantity demanded by the percentage change in price, ignoring the negative sign.
Using the midpoint method, the elasticity of demand for laptops is about _.

Answer 1

Answer:

Quantity of original = 429,000

Quantity of new = 530,000

Average of quantity = 429,000+530,000 / 2 = 479500

Price of original = 2,100

Price of new = 1,820

Average of price = 2,100+1,820 /2 = $1,960

Change in quantity = 530,000 - 429,000 = 101000

Change in price = $1,820 - $2,100 = -$280

Percentage Change in quantity = (530,000-429,000)/(530,000+429,000)/2 = 21.06%

Percentage Change in price = (1,820-2,100)/(1,820+2,100)/2 = 14.29%

The price elasticity of demand using Mid-point method = 21.06/14.29 = 1.47