Elasticity: The Responsiveness of Demand and Supply
In calculating the percentage change in price and quantity, the midpoint formula divides by theaverage of the starting and ending values.Midpoint formula:
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.
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 life-saving drug.
Problems and Applications
. This is a much smaller value than in a.
We can calculate the price elasticity using the midpoint formula as follows:Percentage change in quantity demanded =
Percentage change in price =
So, the price elasticity of demand =
Notice that this value is significantly different from the ones calculated in a. and b.