At point A, the price is $6 for 120 units. Moving to point B, the price increases to $9, resulting in a decrease in quantity demanded to 80 units. This translates to a 50 percent increase in price and a 33.33 percent decrease in quantity, leading to a price elasticity value of 33.33/50 or 0.67.
Conversely, moving from point B to A, entails a 33.33 percent decline in price and a 50 percent increase in quantity. This yields a price elasticity of 50/33.33 or 1.5.
This discrepancy arises from the different bases used for percentage changes in each direction. To avoid this inconsistency, economists employ the midpoint method for calculating price elasticity.
Using the midpoint method, the midpoint price is $7.5 ((6+9)/2), and the midpoint quantity is 100 units ((120+80)/2). According to the midpoint method, the price changes by 40 percent ((9-6)/7.5), and the quantity changes by the same percentage ((80-120)/100), resulting in a price elasticity equal to 1.
The midpoint method offers a consistent measure of elasticity regardless of the direction of movement along the demand curve.
From Chapter 2:
Now Playing
Demand and its Elasticities
80 Views
Demand and its Elasticities
456 Views
Demand and its Elasticities
466 Views
Demand and its Elasticities
207 Views
Demand and its Elasticities
136 Views
Demand and its Elasticities
132 Views
Demand and its Elasticities
227 Views
Demand and its Elasticities
209 Views
Demand and its Elasticities
100 Views
Demand and its Elasticities
59 Views
Demand and its Elasticities
106 Views
Demand and its Elasticities
61 Views
Demand and its Elasticities
94 Views
Demand and its Elasticities
293 Views
Demand and its Elasticities
151 Views
See More
Copyright © 2025 MyJoVE Corporation. All rights reserved