Question

Rain spoils the strawberry crop. As a result, the price of strawberries rises from $4 to $6 a box and the quantity decreases from 1,000 to 600 boxes a week. Use the midpoint formula to derive the price elasticity of demand over this price range. Then state if the demand for strawberries is elastic, inelastic, or unit elastic.

Answer 1

Mid point elasticity formula

[change in price] / [average price] ÷ [change in quantity] / [average quantity]

change in price = $6 - $4 = $2

average price = [$ 6 +$4] / $2 = 10/ 2 = 5

[change in price] / [average price] = 2/5

change in quantity = 1000 boxes - 600 boxes = 400 boxes

average quantity = [1000 boxes + 600 boxes] / 2 = 1600 boxes / 2 = 800
boxes

change in quantity / average quantity = 400/800 = 1/2

midpoint elasticity = 2/5 ÷ 1/2 = 4/5 = 0.8

0.8 < 1 => inelastic demand (the change is demand is less than proportional to the change in price)