Question

3.6 You are given the following information about the demand for fresh tomatoes.
Price per kg Quantity demanded (kg)
R30 1 000
R32 850
Using the midpoint method calculate the price elasticity of demand (using 2 decimal
places) for the R30 to R32 price range. The price elasticity of demand for tomatoes is
[1] 0,26
[2] 1,00
[3] 2,25
[4] 2,51

Answer 1

Answer on Question #80702, Economics / Macroeconomics

To calculate elasticity, we will use the average percentage change in both quantity and price. This is called the midpoint method for elasticity and is represented by the following equations:

$$Q _ {1} = 1000, \quad Q _ {2} = 850;$$ $$P _ {1} = 30, \quad P _ {2} = 32.$$

Percent change in quantity:

$$\frac {Q _ {2} - Q _ {1}}{\left(Q _ {2} + Q _ {1}\right) \div 2} \times 100$$ $$\frac {850 - 1000}{(850 + 1000) \div 2} \times 100 = 16,21\% *$$

Percent change in price:

$$\frac {P _ {2} - P _ {1}}{\left(P _ {2} + P _ {1}\right) \div 2} \times 100$$ $$\frac {32 - 30}{(32 + 30) \div 2} \times 100 = 6,45\%$$

Price Elasticity of Demand = $\frac{16,21}{6,45} = 2,51$

Answer is [4] = 2,51.

Answer provided by https://www.AssignmentExpert.com

* The minus is usually taken to be omitted and evaluated modulo. So mathematically, we take the absolute value of the result.