Question

We use percent-changes in the formula for estimating the price elasticity of demand coefficient in order to:

a-Make the coefficients value become independent of whether price goes up or down
b-Take the midpoints of P and of Q in the computation
c-Eliminate the negative sign of the coefficient
d- Make it irrelevant how we measure price: be it in cents, in dollars, or in thousands of dollars.

Answer 1

We use percent-changes in the price elasticity of demand formula to standardize the coefficient, allowing for a consistent comparison across different price and quantity changes, and it is irrespective of the units of price measurement.

Step-by-step explanation:

We use percent-changes in the formula for estimating the price elasticity of demand coefficient to make the coefficient value independent of the direction of the price change. This is achieved through the use of the Midpoint Method for Elasticity, which calculates the average percent change in both quantity and price. By using the average percent change, it also makes the elasticity coefficient unaffected by the units used to measure price, whether it is in cents, dollars, or thousands of dollars.To illustrate, consider a price decrease from $70 to $60, with the quantity demanded increasing from 2,800 to 3,000 units. Using the Midpoint Method:Calculate the percentage change in quantity demanded: ((3,000 - 2,800) / ((3,000 + 2,800) / 2)) x 100.Calculate the percentage change in price: ((60 - 70) / ((60 + 70) / 2)) x 100.The price elasticity of demand is then the percentage change in quantity divided by the percentage change in price.This method allows for a standardized elasticity measure, facilitating comparison across different scenarios and products.