A correct formula (dropping all minus signs)for the calculation of the elasticity of demand between point Q₁,P₁ and point Q₂,P₂ is A)[(P₂ - P₁)/(P₂ + P₁)]/[(Q₂ - Q₁)/(Q₂ + Q₁)]. B)[(P₂ - P₁)/P₁]/[(Q₂ - Q₁)/Q₁]. C)[(Q₂ - Q₁)/(Q₂ + Q₁)]/[(P₂ -P₁)/(P₂ + P₁)]. D)[(Q₂ -Q₁)/Q₂)]/[(P₂ - P₁)/P₂].

Question

Quizplus · Accepted Answer

The correct formula for the elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. It is expressed as [(ΔQ/Q) / (ΔP/P)]. Using the midpoint formula to calculate the percentage change, we get [(ΔQ/(Q1+Q2)/2) / (ΔP/(P1+P2)/2)]. Rearranging this formula, we get [(ΔQ/ΔP) * ((P1+P2)/2)/((Q1+Q2)/2)]. Hence, the correct formula for the elasticity of demand between two points is [(ΔQ/Q) / (ΔP/P)]*[(P1+P2)/2]/[(Q1+Q2)/2]. This formula is equivalent to choice C.

A Correct Formula (Dropping All Minus Signs)for the Calculation of the Elasticity