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Midpoint Methods For Price Elasticity Of Demand

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- for price elasticity of demand is the proportional change in demand given a change in price( Patrick L et al. 1997) PED = ( % change in the quantity demand)/(% change in the price) = (%∆QD)/(%∆P)
Or % ∆ QD mearused as follows for two different quantities (Quanity2-quantity1)/(quantity1+quantity2/2)
Similarly the % ∆P = (price2-price1)/(price1+price 2/2)
Therefore, midpoint method for calculating price elasticity of demand is the change in quantity divided by average two quaunties divided by change in price divided by average of two prices (Q2-Q1)/(Q1+Q2/2) ÷ (P2-P1)/(P1+P2/2)
The another way of calculating price elasticity of demand is the percentage method.it is …show more content…
Cross elasticity of demand (CED) =(% change in quantity demand for good A)/(% change in price for second good B) Here good A is ice cream and good B is chocolate sauce
The cross elasticity of demand for ice cream with respect to the price of chocolate sauce = (percentage change in the quantity of ice cream demanded)/( the percentage change in the price of chocolate sauce) = 15/(-5) = 3%
So the values of price elasticity of demand for chocolate sauce and cross price elasticity for ice cream with respect to chocolate sauce are 2% and 3% respectively. Ice cream and chocolate sauces are complements.
REFERENCE LIST Price Elasticity of Demand By Patrick L. Anderson, Richard D. McLellan, Joseph P. Overton, and Dr. Gary L. Wolfram | Nov. 13, 1997 The Dynamics of Price Elasticity of Demand in the Presence of Reference Price Effects Gadi Fibich Tel Aviv University Arieh Gavious Oded Lowengart Ben Gurion

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