Suppose that during the past year, the price of a laptop computer rose from $2,1

Question

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.)

1: Fill in the appropriate values for original quantity, new quantity, original price, and new price.

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.

3: Calculate the change in quantity by subtracting the original quantity from the new quantity. Do the same for the change in price.

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.

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  -----------------------.

Original New Average Change Percentage Change Quantity     Price    

Explanation / Answer

Average= (Original + New) / 2

Price elasticity of demand (ED) = Change in quantity / Change in price * Price / Quantity

= 107000 / 450 * 2100 / 470000

= 224700000 / 211500000

   = 1.06 (approx)

Since Price elasticity of demand (ED) > 1, i.e., demand is elastic.

Particulars Original New

Average= (Original + New) / 2

Change = New - Original Percentage change = (New - original) / original * 100 Quantity 470000 363000 416500 (-) 107000 (-) 107000 / 470000 * 100 = (-) 22.77 % (approx) Price 2100 2550 2325 450 450 / 2100 * 100= 21.43 % (approx)

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