Question

Suppose that your demand schedule for pizza is as follows:

Price Quantity of Pizzas Demanded Quantity of Pizzas Demanded
(Dollars) (Income = $20,000) (Income = $24,000)
8 40 50
10 32 45
12 24 30
14 16 20
16 8 12

Using the midpoint method, your price elasticity of demand as the price of pizzas increases from ______________ is ____________ if your income is $20,000 and _____________ if your income is $24,000.

Answer 1

-1.57

-2.2

Step-by-step explanation:

Using the midpoint method, your price elasticity of demand as the price of pizzas increases from $10 to $12 is if your income is $20,000 and if your income is $24,000.

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.

Price elasticity of demand = midpoint change in quantity demanded / midpoint change in price

Midpoint change in quantity demanded = change in quantity demanded / average of both demands

midpoint change in price = change in price / average of both price

Elasticity when income is $20,000

change in quantity demanded = 24 - 32 = -8

average of both demands = (24 + 32) / 2 = 28

-8/28 =-0.286

change in price = 12 - 10 = 2

average of both prices = (12 + 10) / 2 = 11

2/11 = 0.182

Midpoint elasticity = -0.286 / 0.182 = -1.57

When income is $24,000

change in quantity demanded = 30 - 45 = -15

average of both demands = (30 + 45) / 2 = 37.50

-15/37.50 = -0.4

change in price = 12 - 10 = 2

average of both prices = (12 + 10) / 2 = 11

2/11 = 0.182

Midpoint elasticity = -0.4 / 0.182 = -2.20