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# 经济代写|宏观经济学代考Macroeconomics代写|Calculating the Price Elasticity of Demand: The Midpoint Method

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## 经济代写|宏观经济学代考Macroeconomics代写|Calculating the Price Elasticity of Demand: The Midpoint Method

To get a clear picture of exactly how the price elasticity of demand is calculated, consider the case for a hypothetical pizza market. Say the price of pizza increases from $\$ 19$to$\$21$. If we take an average between the old price, $\$ 19$, and the new price,$\$21$, we can calculate an average price of $\$ 20$. Exhibit 4 shows that as a result of the increase in the price of pizza, the quantity demanded has fallen from 82 million pizzas to 78 million pizzas per year. If we take an average between the old quantity demand, 82 million, and the new quantity demanded, 78 million, we have an average quantity demanded of 80 million pizzas per year. That is, the$\$2$ increase in the price of pizza has led to a 4-million pizza reduction in quantity demanded. How can we figure out the price elasticity of demand?

You might ask why we are using the average price and average quantity. The answer is that if we did not use the average amounts, we would come up with different values for the elasticity of demand depending on whether we moved up or down the demand curve. When the change in price and quantity are of significant magnitude, the exact meaning of the term percentage change requires clarification, and the terms price and quantity must be defined more precisely. The issue thus is, should the percentage change be figured on the basis of price and quantity before or after the change has occurred? For example, a price rise from $\$ 10$to$\$15$ constitutes a 50 percent change if the original price $(\$ 10)$is used in figuring the percentage$(\$5 / \$ 10)$, or a 33 percent change if the price after the change$(\$15)$ is used $(\$ 5 / \$15)$.

For small changes, the distinction is not important, but for large changes, it is. To avoid this confusion, economists often use this average technique. Specifically, we are actually calculating the elasticity at a midpoint between the old and new prices and quantities.

Now to figure out the price elasticity of demand, we must first calculate the percentage change in price. To find the percentage change in price, we take the change in price $(\Delta P)$ and divide it by the average price $\left(P_{\text {avg }}\right)$. (Note: The Greek letter delta, $\Delta$, means “change in.”)
Percentage change in price $=\Delta P / P_{\text {avg }}$
In our pizza example, the original price was $\$ 19$, and the new price is$\$21$. The change in price $(\Delta P)$ is $\$ 2$, and the average price$\left(P_{\mathrm{avg}}\right)$is$\$20$. The percentage change in price can then be calculated as
\begin{aligned} \text { Percentage change in price } & =\ 2 / \ 20 \ & =1 / 10=0.10=10 \% \end{aligned}
Next, we must calculate the percentage change in quantity demanded. To find the percentage change in quantity demanded, we take the change in quantity demanded $\left(\Delta Q_D\right)$ and divide it by the average quantity demanded $\left(Q_{\text {avg }}\right)$.

## 经济代写|宏观经济学代考Macroeconomics代写|The Determinants of the Price Elasticity of Demand

As you have learned, the elasticity of demand for a specific good refers to movements along its demand curve as its price changes. A lower price will increase quantity demanded, and a higher price will reduce quantity demanded. But what factors will influence the magnitude of the change in quantity demanded in response to a price change? That is, what will make the demand curve relatively more elastic (where $Q_D$ is responsive to price changes), and what will make the demand curve relatively less elastic (where $Q_D$ is less responsive to price changes)?
For the most part, the price elasticity of demand depends on three factors: (1) the availability of close substitutes, (2) the proportion of income spent on the good, and (3) the amount of time that has elapsed since the price change.
Availability of Close Substitutes
Goods with close substitutes tend to have more elastic demands. Why? Because if the price of such a good increases, consumers can easily switch to other now relatively lower-priced substitutes. In many examples, such as one brand of root beer as opposed to another, or different brands of gasoline, the ease of substitution will make demand quite elastic for most individuals. Goods without close substitutes, such as insulin for diabetics, cigarettes for chain smokers, heroin for addicts, or emergency medical care for those with appendicitis, a broken leg or a rattlesnake bite, tend to have inelastic demands.

The degree of substitutability can also depend on whether the good is a necessity or a luxury. Goods that are necessities, such as food, have no ready substitutes and thus tend to have lower elasticities than do luxury items, such as jewelry.

When the good is broadly defined, it tends to be less elastic than when it is narrowly defined. For example, the elasticity of demand for food, a broad category, tends to be inelastic over a large price range because few substitutes are available for food. But for a certain type of food, such as pizza, a narrowly defined good, it is much easier to find a substitute-perhaps tacos, burgers, salads, burritos, or chili fries. That is, the demand for a particular type of food is more elastic because more and better substitutes are available than for food as an entire category.

# 宏观经济学代写

## 经济代写|宏观经济学代考Macroeconomics代写|Calculating the Price Elasticity of Demand: The Midpoint Method

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