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To calculate elasticity, instead of using simple percentage changes in quantity
and price, economists use the average percent change in both quantity and price. This
is called the Midpoint Method for Elasticity, and is represented in the following
equations:
Eq = (Q2 – Q1) / (Q2 + Q1) / 2) × 100
Ep = (P2 – P1) / (P2 + P1) / 2) × 100
The advantage of the Midpoint Method is that one obtains the same elasticity
between two price points whether there is a price increase or decrease. This is
because the formula uses the same base for both cases.

ASSIGNMENTS

Choose the correct answer.
1 The law of demand states:
a) as the price of a good decreases, consumers generally purchase more of that
good;
b) the demand for a good increases with the number of consumers in the
market;
c) as income increases, people consume more of all goods;
d) the supply of a good increases in proportion to the demand for it.

2 The supply schedule shows the relationship between which two elements?
a) the price of a good and the quantity of that good a company is willing to
produce at that price;
b) the price of a good and the cost of producing that good;
c) the price of a good and the number of consumers who would buy the good at
that price;
d) the price of a good and its opportunity cost.

3 If a price increase of good A increases the quantity demanded of good B,
then good B is a:
a) substitute good;
b) complementary good;
c) bargain;
d) inferior good.

4 A demand curve can shift because of changing:
a) incomes;
b) prices of related goods;
c) tastes;
d) all of the above.

5 Which of the following is not a determinant of the supply of peanut butter?
a) the price of peanut butter substitutes;
b) the wages of workers at the peanut factory;
c) the price of peanuts;

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