The Midpoint Method is a way to calculate percent changes and elasticities that gives the same result whether you go from A→B or B→A (Mankiw, 2024). It uses the average (midpoint) of the starting and ending values as the base for percentage changes.
How to calculate the Price Elasticity of Demand
Calculate change in quantity: ΔQ = Q2 − Q1
Calculate average quantity: Qavg = (100 + 80)/2 = 90
Calculate percentage change in quantity: %ΔQ = ΔQ / Qavg
Do the same for price: ΔP = P2 − P1, Pavg = (P1 + P2)/2, %ΔP = ΔP / Pavg
Price Elasticity of Demand = %ΔQ / %ΔP
Example:
Suppose price rises from $10 to $12 and quantity demanded falls from 100 units to 80 units.
- Q1 = 100, Q2 = 80 → ΔQ = −20
- Qavg = (100 + 80)/2 = 90
- %ΔQ = −20 / 90 = −0.2222 (−22.22%)
- P1 = 10, P2 = 12 → ΔP = 2
- Pavg = (10 + 12)/2 = 11
- %ΔP = 2 / 11 = 0.1818 (18.18%)
- %ΔP = 2 / 11 = 0.1818 (18.18%)
Don’t forget to use the absolute value of the price elasticity of demand to determine elasticity! In our example, the Price Elasticity of Demand is -1.222. The absolute value of this number is 1.222. Using this number, we can see that the PED > 1, so the good is elastic.
Mankiw, N. G. (2024). Principles of Economics. Cengage Learning.
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