Use the figure below to answer the following question.
The diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate period, the short run, and the long run. Supply curves S1, S2, and S3 apply to the
Multiple Choice
immediate period, long run, and short run respectively.
immediate period, short run, and long run respectively.
long run, short run, and immediate period
respectively.
Correct
short run, long run, and immediate period respectively.
What is the price elasticity of demand when price increases from $6 to $7?
By the midpoint method, the price elasticity of demand between $6 and $7 is approximately: 1.86.
What is the midpoint formula for elasticity of demand?
Let's calculate the arc elasticity following the example presented above: Midpoint Qd = (Qd1 + Qd2) / 2 = (40 + 60) / 2 = 50. Midpoint Price = (P1 + P2) / 2 = (10 + 8) / 2 = 9. % change in qty demanded = (60 – 40) / 50 = 0.4.
What is the price elasticity of demand between $9 and $10?
When we analyze price elasticities we're concerned with their absolute value, so we ignore the negative value. We conclude that the price elasticity of demand when the price increases from $9 to $10 are 2.4005.
How do you calculate the price elasticity of demand when price falls?
Using the formula as mentioned above, the calculation of price elasticity of demand can be done as: Price Elasticity of Demand = Percentage change in quantity / Percentage change in price. Price Elasticity of Demand = -15% ÷ 60% Price Elasticity of Demand = -1/4 or -0.25.