SHOW ALL YOUR WORK PLEASE Problem 1: At 25 cents apiece, Mrs. Brown sells 100 candies per week. If she drops his price by 20 cents, her weekly sales will increase to 110 candies per week. Is the demand for candies elastic or inelastic? Prove your answer using two different approaches Solution One way to determine price elasticity of demand is to simply take the percent change in the quantity demanded and divide it by the percent change in the price of the item. In this case, the quantity demanded rose from 100 to 110. That is a 10% increase. The price dropped from .25 to .20. That is a 25% decrease. So we then divide .1/-.25 = -.4 Most economists simply give price elasticity of demand as a positive number (the absolute value), so we would say that the price elasticity of demand for these candies using this method is .4. However, this method is not as accurate as the midpoint method of finding elasticity. The midpoint method is somewhat more complicated. It requires us to perform the following calculation: [(Q2 - Q1) / ((Q1 + Q2) / 2)] / [(P2 - P1) / ((P1 + P2) / 2)] When we plug in the numbers, we get = 10/(110/2)/.05/(.45/2) = (10/55)/(.05/.225) = .182/.222 = .82 So, by the midpoint method, the price elasticity of demand is .82. Whichever way the elasticity is measured, we would say that the demand for these candies is price inelastic because the elasticity is less than 1..

1. SHOW ALL YOUR WORK PLEASE
Problem 1: At 25 cents apiece, Mrs. Brown sells 100 candies per week. If she drops his price by
20 cents, her weekly sales will increase to 110 candies per week. Is the demand for candies
elastic or inelastic? Prove your answer using two different approaches
Solution
One way to determine price elasticity of demand is to simply take the percent change in the
quantity demanded and divide it by the percent change in the price of the item.
In this case, the quantity demanded rose from 100 to 110. That is a 10% increase. The price
dropped from .25 to .20. That is a 25% decrease. So we then divide
.1/-.25 = -.4
Most economists simply give price elasticity of demand as a positive number (the absolute
value), so we would say that the price elasticity of demand for these candies using this method is
.4.
However, this method is not as accurate as the midpoint method of finding elasticity. The
midpoint method is somewhat more complicated. It requires us to perform the following
calculation:
[(Q2 - Q1) / ((Q1 + Q2) / 2)] / [(P2 - P1) / ((P1 + P2) / 2)]
When we plug in the numbers, we get
= 10/(110/2)/.05/(.45/2)
= (10/55)/(.05/.225)
= .182/.222
= .82
So, by the midpoint method, the price elasticity of demand is .82.
Whichever way the elasticity is measured, we would say that the demand for these candies is
price inelastic because the elasticity is less than 1.