Suppose the price of a good rises from $10 to $20 and quantity demanded falls from 500 to 400. If you calculate the elasticity of demand WITHOUT using the midpoint method, the answer would be _____. If you calculate the elasticity of demand WITH the midpoint method, the answer would be _____. Economists say _____ when calculating elasticity.

Question

Quizplus · Accepted Answer

Without using the midpoint method, the elasticity of demand would be:
-1/2 [(400-500)/((400+500)/2)] / (20-10)/10 = -1/5
Using the midpoint method, the elasticity of demand would be:
[(400/450) - (500/550)] / [(20/15)] = -1/3
Economists usually prefer to use the midpoint method as it gives a more accurate measure of elasticity by preventing bias due to the starting and ending points of the calculation. Thus, the answer is D - use the midpoint method.

Suppose the Price of a Good Rises from $10 to $20