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Midpoint formula

Midpoint formula - i.e the price elasticity of demand at...

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Appendix to Chapter 4 – The Midpoint Formula Introduction to Microeconomics (E, F, G) Fall 2008 Prepared by Sylvie Démurger PURPOSE: The purpose of this short Appendix is to answer the question about what to use for P and Q at the denominator of ΔP/P and ΔQ/Q when calculating the price elasticity of demand for a good. - Old price and old quantity? - New price and new quantity? Economists have developed a convention, the midpoint formula , which uses the average (or midpoint) of the old and new quantities demanded and the old and new prices: ] 2 / ) /[( ] 2 / ) /[( new old new old P P P Q Q Q + + = ε Note that in lecture, we always refer to point elasticity
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Unformatted text preview: , i.e. the price elasticity of demand at point A, B, or C. EXERCISE: At a price of 3, quantity demanded of a good is 6, while at a price of 4, quantity demanded is 4. What is the price elasticity of demand for this good? HOW TO PROCEED: 1. Try to find the solution of the above exercise. 2. If you cannot find it easily, then read carefully the Appendix provided in the textbook (Frank, Robert H. and Ben S. Bernanke (2006): Principles of Microeconomics , 3rd edition, McGraw-Hill), pages 123-124. 3. If you need further assistance and help in understanding this Appendix, please feel free to ask....
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