SOLVED:Suppose that your demand schedule for pizza is as follows: a. Use the midpoint method to calculate your price elasticity of demand as the price of pizza increases from to 0 if (i) your income i

The Mid point forumula for Price Elasticity of Demand
The Mid point forumula for Price Elasticity of Demand

for this problem, we need to recall our formula for elasticity, the percentage change in quantity divided by the percentage change in price. And we’re also going to be using the midpoint method. How does that work? Essentially, what you do is you take the change. So let’s say we move from 1 to 2, right, and that’s a change of plus one. And then when you go to divide, you don’t divide by one. You don’t divide by two. Instead, you divide by the midpoint, which is 1.5, right, because 1.5 is the midpoint between one and two. Okay, so for our data that we have, this is just a representation of the table. That’s that’s in the textbook. But it shows the dollar value right at the two different income levels. In other words, it shows the quantity of pizzas that you’re going to buy if you have a certain level of income. And if there’s a certain price on those pizzas, Okay, simple enough. So for letter A right, we’re going to move from 8 to $10 in the price of pizza, so the price is increasing by two, and it’s asking if your income is 20,000 and if your income is 24,000 what is the price? Elasticity? Okay, so where do we get all these numbers? Well, eight divided by 36 8 is the decrease in quantity demanded? 36 is the midpoint between 40 and 32. The reason we’re using those two quantities of pizza is because they correspond with the price of eight and 10 which is the change in price. And that’s where we get the two in the nine. And the denominator the two is the change in price than nine is the price. Uh, is the midpoint. Excuse me? Is the midpoint of those two prices. So what do we get? Well, we just get one. If you do the math, throw that into your calculator for the second product. The second part for 24,000. All you do is you use the third column and you get a…

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