CHAPTER 6

Elasticity: The Responsiveness of Demand and Supply
1.3
In calculating the percentage change in price and quantity, the midpoint formula divides by theaverage of the starting and ending values.Midpoint formula:
+−÷ +−
2)(2)(
21122112
P P P P QQQQ
Percentage changes can also be calculated by using the starting or ending value without averaging, butthis gives different results depending on whether the starting or ending value is used.
1.4
A perfectly inelastic demand curve is shown by a vertical line, as shown at the bottom of Table6–1. Such a good will have no substitutes—for example, a lifesaving drug.
Problems and Applications
1.5 a.
000,000,4
00.3$00.2$
000,000,8000,000,12
−=−−
b.
400.3$00.2$
812
−=−−
. This is a much smaller value than in a.
c.
We can calculate the price elasticity using the midpoint formula as follows:Percentage change in quantity demanded =
%40100000,000,10
000,000,8000,000,12
=×−
Percentage change in price =
%4010050.2$
00.3$00.2$
−=×−
So, the price elasticity of demand =
1%40%40
−=−
Notice that this value is significantly different from the ones calculated in a. and b.
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