Question

Why is the midpoint formula to calculate elasticity so important?

A. It gives meaning to a negative (-) calculation of elasticity
B. It identifies the slope of the demand curve
C. It allows us to go "up or down" the demand curve to calculate elasticity
D. It supports the substitution effect
E. It identifies Giffen goods

Answer 1

The Midpoint Method is important for calculating elasticity because it provides a consistent measure of elasticity between two price points, regardless of whether there is a price increase or decrease. The formula uses the average quantity and average price as the base for both cases, ensuring that the calculation remains the same.

Step-by-step explanation:

The Midpoint Method is important for calculating elasticity because it provides a consistent measure of elasticity between two price points, regardless of whether there is a price increase or decrease.

The formula uses the average quantity and average price as the base for both cases, ensuring that the calculation remains the same.

This allows economists to analyze the responsiveness of demand or supply to price changes accurately.

For example, let's say we have two price points, A and B, for a product.

By using the Midpoint Method, we can calculate the elasticity between these two points and determine how sensitive the quantity demanded is to price changes.

1. Calculate the percentage change in quantity: [(Quantity B - Quantity A)/((Quantity B + Quantity A)/2)] * 100
2. Calculate the percentage change in price: [(Price B - Price A)/((Price B + Price A)/2)] * 100
3. Divide the percentage change in quantity by the percentage change in price to find the elasticity.

This step-by-step process allows economists to quantify the responsiveness of demand or supply and gain insights into consumer behavior and market dynamics.