Question

1. Using the midpoint formula, be able to determine the elasticity along a curve.

P	Q
7	0
6	5
5	10
4	15
3	20
2	25
1	30

Calculate the elasticity from $5 to $4

Calculate the elasticity from $4 to $3

Calculate the elasticity from $3 to $2

Answer 1

Answer
Calculate the elasticity from $5 to $4

Elasticity of demand=(change in quantity/average quantity)/(change in price/average price)
Change in quantity=15-10=5
average quantity=(15+10)/2=12.5
change in price=4-5=-1
average price=(4+5)/2=4.5
Elasticity of demand=(5/12.5)/(-1/4.5)
=-1.8

the elastcity of demand is 1.8 in absolte term. It is elastic becase the elastcity is above 1.
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Calculate the elasticity from $4 to $3

Elasticity of demand=(change in quantity/average quantity)/(change in price/average price)
Change in quantity=20-15=5
average quantity=(20+15)/2=17.5
change in price=3-4=-1
average price=(3+4)/2=3.5
Elasticity of demand=(5/17.5)/(-1/3.5)
=-1
the elastcity of demand is 1 in absolute term. It unit elastic as it is equal to 1.

Calculate the elasticity from $3 to $2
Elasticity of demand=(change in quantity/average quantity)/(change in price/average price)
Change in quantity=25-20=5
average quantity=(25+20)/2=22.5
change in price=2-3=-1
average price=(2+3)/2=2.5
Elasticity of demand=(5/22.5)/(-1/2.5)
=-0.555555556
=-0.56
the elastcity of demand is 0.56 in absolute value. It is inelastic as the elastcity is below 1.