Question

Why, when we calculate the price elasticity of demand, do we express the change in price as a percentage of the average price and the change in quantity as a percentage of the average quantity?

Answer 1

Ans. When calculating price elasticity of demand, %change in average quantity demanded and %change in average price is used in the method called Mid- Ponit method. The rationale for using this method in contrast to the simple percentage is that this method will gave the same value of elasticity irrespective of the direction in which price moves i.e. if price increases from P1 to P2 or ot decreases from P2 to P1, the price elasticity of demand will be same between the two points as the base while caluculating the percentage change will be same while caluculating both increase and decrease in price, equal to the average of the two prices

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