Concept #1: The Midpoint Method
Practice: The price of widgets is currently $44 with a quantity demanded of 200,000 units. If the price decreases to $36, the quantity demanded increases 280,000. Using the midpoint method, what is the price elasticity of demand? Is demand elastic or inelastic?
Practice: The price of a good rises from $8 to $12, and the quantity demanded falls from 110 to 90 units. Using the midpoint method, what is the price elasticity of demand?
Practice: Assume that the price elasticity of demand for cigarettes is 0.4. If a pack of cigarettes currently costs $6 and the government aims to decrease smoking by 20 percent, by how much should it increase the price?
