Final answer:
To determine the price elasticity of demand using the midpoint approach, we use a standard formula considering average prices and quantities. It provides consistent elasticity regardless of a price increase or decrease. The calculated elasticity is then classified as elastic, inelastic, or unit elastic.
Step-by-step explanation:
The student's question about using the midpoint approach to determine the price elasticity of demand falls under the subject of Business, specifically within the field of economics. In the context of smart phones or any other products, the midpoint formula for elasticity is given by the following expression:
Elasticity = (ΔQ / ((Q1 + Q2) / 2)) / (ΔP / ((P1 + P2) / 2))
Where ΔQ is the change in quantity demanded, Q1 and Q2 are the initial and final quantities, ΔP is the change in price, and P1 and P2 are the initial and final prices, respectively. To classify the elasticity at each point (B to C, D to E, and G to H), you will calculate the elasticity and then classify it as:
- Elastic if the elasticity is greater than 1,
- Inelastic if the elasticity is less than 1,
- Unit elastic if the elasticity is exactly 1.
For each of the mentioned points, the student must apply the midpoint formula, compare the resulting elasticity with the aforementioned classifications, and determine the nature of the price sensitivity.