Question

Calculating the price elasticity of demand: A step-by-stepguide

Suppose that during the past year, the price of a laptop computer rose from $2,950 to $3,110. During the same time period, consumer sales decreased from 468,000 to 296,000 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					a. -45.03% b. -22.51% c.222.09%
Price					a. 1,893.75% b. 5.28% c. 2.64%

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 a. 0.12 b. 4.26 c. 8.53 d. 17.06

Answer 1

1.

Quantity-- a. -45.03%
Price-- b. 5.28%
2.

Using the midpoint method, the elasticity of demand for laptops is about c. 8.53

Calculations:
Ep=% change in quantity demanded/% change in price
Ep=-8.53

Calculations of Table

Average= (Q2+Q1)/2

Average=(P1+P2)/2

Change in Q=Q2-Q1

Change in P=P2-P1

% change in quantity=Change in Q/Average * 100

% change in price=Change in P/Average * 100

	Q1	Q2	Average	Q2-Q1	% change in Q
Quantity	468000	296000	382000	-172000	-45.02617801
Price	2950	3110	3030	160	5.280528053