{"id":189512,"date":"2025-02-09T09:40:07","date_gmt":"2025-02-09T09:40:07","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=189512"},"modified":"2025-02-09T09:40:10","modified_gmt":"2025-02-09T09:40:10","slug":"calculation-own-price-elasticity","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/02\/09\/calculation-own-price-elasticity\/","title":{"rendered":"CALCULATION – OWN-PRICE ELASTICITY"},"content":{"rendered":"\n

CALCULATION – OWN-PRICE ELASTICITY The %age change in quantity demanded of a good divided by the %age change in price of the good. Two ways in making the calculation – point Formula and midpoint formula. The latter is more precise. \u2022 Point formula – (Q2 – Qu)\/Q1 \/ (P2 – P1)\/P1 \u2022 Midpoint formula – (Q2-Qa)\/[(Q2 + Q1)\/2] \/ (P2-P1)\/[(P2 + P1)\/2]. Example – Table 1 – Prices and quantity demanded of organic apples Price Quantity Demanded range (a) P1 P2 $10 9 4 86 \u0645\u0647 | | o | (b) 10 P1 P2 (c) P13 PL \u0645\u0633\u0627\u062c 14 16 18 Using table 1 and midpoint formula at (a), price drops from $10 to $9 and demand rises from 2 to 4; the own-price elasticity = (4-2)\/([4+2)\/2] \/ [(9-10)\/((9+10)\/2]= 2\/3\/(-1\/9.5) = 2×9.5\/3 = -19\/3 = -6.33. Absolute value > 1, thus elastic. At (c) price drops from $3 to $2 and demand rises from 16 to 18, the own-price elasticity = (18-16)\/((18+16)\/2]\/(2-3)\/[(2+3)\/2] = 2\/17\/ -1\/2.5 = 5\/-17 = -0.294. Absolute value is less than one but greater than zero, thus inelastic. Please see interpretations below. INTERPRETATIONS OWN-PRICE ELASTICITY Ep = 0 Perfectly elastic Ep > 1 elastic 0<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n

Own-Price Elasticity of Demand Calculation<\/h3>\n\n\n\n

The own-price elasticity of demand (Ep) measures how the quantity demanded of a good changes in response to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. There are two formulas commonly used to calculate price elasticity: the point formula<\/strong> and the midpoint formula<\/strong>. The midpoint formula is generally preferred for its precision because it gives the same result regardless of the direction of change (i.e., whether the price increases or decreases).<\/p>\n\n\n\n

Point Formula<\/strong>:<\/h4>\n\n\n\n

The point formula for elasticity is:<\/p>\n\n\n\n

[
E_p = \\frac{(Q_2 – Q_1)}{Q_1} \\Big\/ \\frac{(P_2 – P_1)}{P_1}
]<\/p>\n\n\n\n

Where:<\/p>\n\n\n\n

    \n
  • ( Q_1 ) and ( Q_2 ) are the initial and final quantities demanded, respectively.<\/li>\n\n\n\n
  • ( P_1 ) and ( P_2 ) are the initial and final prices, respectively.<\/li>\n<\/ul>\n\n\n\n

    Midpoint Formula<\/strong>:<\/h4>\n\n\n\n

    The midpoint formula for elasticity is:<\/p>\n\n\n\n

    [
    E_p = \\frac{(Q_2 – Q_1)}{\\left(\\frac{Q_2 + Q_1}{2}\\right)} \\Big\/ \\frac{(P_2 – P_1)}{\\left(\\frac{P_2 + P_1}{2}\\right)}
    ]<\/p>\n\n\n\n

    Where:<\/p>\n\n\n\n

      \n
    • The numerator calculates the percentage change in quantity demanded relative to the average quantity, and the denominator calculates the percentage change in price relative to the average price.<\/li>\n<\/ul>\n\n\n\n

      Example: Using the Midpoint Formula<\/strong><\/h3>\n\n\n\n

      In the example you provided, we have the following:<\/p>\n\n\n\n

      At point (a)<\/strong>: Price drops from $10 to $9, and quantity demanded rises from 2 to 4.<\/p>\n\n\n\n

      Using the midpoint formula:<\/p>\n\n\n\n

      [
      E_p = \\frac{(4 – 2)}{\\left(\\frac{4 + 2}{2}\\right)} \\Big\/ \\frac{(9 – 10)}{\\left(\\frac{9 + 10}{2}\\right)}
      ]<\/p>\n\n\n\n

      Calculating the numerator:<\/p>\n\n\n\n

      [
      \\frac{(4 – 2)}{\\left(\\frac{4 + 2}{2}\\right)} = \\frac{2}{3}
      ]<\/p>\n\n\n\n

      And the denominator:<\/p>\n\n\n\n

      [
      \\frac{(9 – 10)}{\\left(\\frac{9 + 10}{2}\\right)} = \\frac{-1}{9.5}
      ]<\/p>\n\n\n\n

      Now, calculate the own-price elasticity:<\/p>\n\n\n\n

      [
      E_p = \\frac{2\/3}{-1\/9.5} = \\frac{2 \\times 9.5}{3} = \\frac{19}{3} = -6.33
      ]<\/p>\n\n\n\n

      The absolute value<\/strong> of the elasticity is 6.33, which is greater than 1<\/strong>, meaning the demand is elastic<\/strong>. This means that the percentage change in quantity demanded is greater than the percentage change in price.<\/p>\n\n\n\n

      At point (c)<\/strong>: Price drops from $3 to $2, and quantity demanded rises from 16 to 18.<\/p>\n\n\n\n

      Using the midpoint formula:<\/p>\n\n\n\n

      [
      E_p = \\frac{(18 – 16)}{\\left(\\frac{18 + 16}{2}\\right)} \\Big\/ \\frac{(2 – 3)}{\\left(\\frac{2 + 3}{2}\\right)}
      ]<\/p>\n\n\n\n

      Calculating the numerator:<\/p>\n\n\n\n

      [
      \\frac{(18 – 16)}{\\left(\\frac{18 + 16}{2}\\right)} = \\frac{2}{17}
      ]<\/p>\n\n\n\n

      And the denominator:<\/p>\n\n\n\n

      [
      \\frac{(2 – 3)}{\\left(\\frac{2 + 3}{2}\\right)} = \\frac{-1}{2.5}
      ]<\/p>\n\n\n\n

      Now, calculate the own-price elasticity:<\/p>\n\n\n\n

      [
      E_p = \\frac{2\/17}{-1\/2.5} = \\frac{2 \\times 2.5}{17} = \\frac{5}{17} = -0.294
      ]<\/p>\n\n\n\n

      The absolute value<\/strong> of the elasticity is 0.294, which is less than 1<\/strong>, meaning the demand is inelastic<\/strong>. This means that the percentage change in quantity demanded is less than the percentage change in price.<\/p>\n\n\n\n

      Interpretation of Elasticity<\/strong>:<\/h3>\n\n\n\n
        \n
      • Elastic demand (Ep > 1)<\/strong>: When the absolute value of elasticity is greater than 1, the demand is considered elastic, meaning consumers are highly responsive to price changes. A small change in price results in a larger percentage change in quantity demanded.<\/li>\n\n\n\n
      • Inelastic demand (0 < Ep < 1)<\/strong>: When the absolute value of elasticity is less than 1, the demand is inelastic. In this case, consumers are less responsive to price changes, and a price change causes a smaller percentage change in quantity demanded.<\/li>\n\n\n\n
      • Unitary elasticity (Ep = 1)<\/strong>: This occurs when the percentage change in quantity demanded equals the percentage change in price, resulting in an elasticity of 1.<\/li>\n\n\n\n
      • Perfectly elastic demand (Ep = \u221e)<\/strong>: When demand is perfectly elastic, consumers will only buy the product at one price and will not purchase it at any other price.<\/li>\n\n\n\n
      • Perfectly inelastic demand (Ep = 0)<\/strong>: When demand is perfectly inelastic, the quantity demanded does not change at all in response to a price change.<\/li>\n<\/ul>\n\n\n\n

        In this example, at point (a), the demand is elastic, and at point (c), the demand is inelastic.<\/p>\n","protected":false},"excerpt":{"rendered":"

        CALCULATION – OWN-PRICE ELASTICITY The %age change in quantity demanded of a good divided by the %age change in price of the good. Two ways in making the calculation – point Formula and midpoint formula. The latter is more precise. \u2022 Point formula – (Q2 – Qu)\/Q1 \/ (P2 – P1)\/P1 \u2022 Midpoint formula – […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-189512","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/189512","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=189512"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/189512\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=189512"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=189512"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=189512"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}