1. Calculating the price elasticity of demand: A step-by-step guide Suppose that
ID: 1141745 • Letter: 1
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1. Calculating the price elasticity of demand: A step-by-step guide Suppose that during the past year, the price of a laptop computer rose from $2,100 to $2,550. During the same time period, consumer sales decreased from 470,000 to 363,000 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 2. 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 aboutExplanation / Answer
a) Original quantity = 470,000, new quantity = 363,000. average = (470,000+363,000)/2 = 416,500, perentage change = 1,07,000 / 416,500 = 0.25%.
b) original price = 2100, new price = 2550, average = (2100 + 2550) / 2 = 2325, percentage change = 0.19.
c) Using the mid point method the elasticity of demand for laptop is about 1.31.
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