Question

The price of a large pizza decreased from $19.00 to $15.00. As a result, the quantity demanded of skateboards increased from 280.00 to 300.00.

Part 1   (1 point)

Using the midpoint formula, what is the percentage change observed for the price of a large pizza? Give your answer to two decimal places.
    %

Part 2   (1 point)

Using the midpoint formula, what is the percentage change observed for the quantity demanded of skateboards? Give your answer to two decimal places.
    %

Part 3   (1 point)

What is the cross-price elasticity of demand between pizzas and skateboards? Give your answer to two decimal places.
     

Answer 1

Midpoint Method

Price	Quantity Demanded
$19	280
$15	300

Cross Elasticity of Demand = % Change in Quantity Demanded of Skateboards / % Change in Price of Pizza

% Change in Quantity Demanded = Q2 - Q1 / (Q1+Q2/2) x 100

% Change in Quantity Demanded = 300 - 280 / (280+300/2) x 100

% Change in Quantity Demanded = 20 / 290 x 100

% Change in Quantity Demanded = 6.89

% Change in Price = P2 - P1 / (P1+P2/2) x 100

% Change in Price = 15 - 19 / (15+19/2) x 100

% Change in Price = -4 / 17 x 100

% Change in Price = -23.52

Cross Elasticity of Demand = % Change in Quantity Demanded of Skateboards / % Change in Price of Pizza

Price Elasticity of Demand = 6.89 / -23.52

Price Elasticity of Demand = 0.29

Negative sign is ignored in price elasticity of demand