2.14 : Ed through Mid-point Method

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.