Midpoint Method for Price Elasticity of Demand

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P E D = \frac{(Q_{2} - Q_{1}) \div (Q_{2} + Q_{1}) / 2}{(P_{2} - P_{1}) \div (P_{2} + P_{1}) / 2}

$PED = (( Q_2 - Q_1 ) divide ( Q_2 + Q_1 )"/"2) / ( ( P_2 - P_1 ) divide ( P_2 + P_1 )"/"2)$

(P_{1}) Price Point 1

$(P_1)"Price Point 1"$

(Q_{1}) Quantity Point 1

$(Q_1)"Quantity Point 1"$

(P_{2}) Price Point 2

$(P_2)"Price Point 2"$

(Q_{2}) Quantity Point 2

$(Q_2)"Quantity Point 2"$

The Math / Science

The formula for Midpoint Method of Price Elasticity of Demand is:

$P E D = \frac{(Q_{2} - Q_{1}) \div (Q_{2} + Q_{1}) / 2}{(P_{2} - P_{1}) \div (P_{2} + P_{1}) / 2} = \frac{Percent Change in Quantity}{Percent Change in Price}$ $PED = ((Q_2 - Q_1) ÷ (Q_2 + Q_1)"/"2) / ((P_2 - P_1) ÷ (P_2 + P_1)"/"2) = ("Percent Change in Quantity")/("Percent Change in Price")$

where:

PED = Price Elasticity of Demand
P₁ = First Price Point
P₂ = Second Price Point
Q₁ = Quantity associated with the First Price Point (P₁)
Q₂ = Quantity associated with the Second Price Point (P₂)

Price Elasticity of Demand refers to the phenomenon that is observed where changes in prices or quantity of supply have varying effect on demand. When changes in supply or price effect demand, this is referred to as an elastic relationship. This is caused by the fact that consumption is not purely driven by need to consume a specific product. In some cases, substitutes can be found. For example, in transportation, the cost to commute via an automobile can be come time and cost prohibitive. In which case, public transportation may act as a substitute. Furthermore, some products are not needed at all, but fall in the category of luxuries. Even small items like an ice-cream cone can be reasonably considered as luxuries since one can live with out it. Inelastic relationships exist when changes in quantity of supply or price, do not effect demand. If we had to buy the air that we breath, the irreplaceable aspect of air and our utter dependence would would create an inelastic relationship.

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Resource:

Mankiw, N. Gregory. "Chapter 5:The Elasticity of Demand." Principles of Microeconomics. 6th ed. Mason, OH: Thomson/South-Western, 2004. 90-92. Print.
“Chapter 7 Consumer Choice and Elasticity.” Microeconomics: Private and Public Choice, by James D. Gwartney et al., Cengage Learning, 2018.
Colander. Microeconomics. 7th ed., McGraw Hill, 2008. pg 131
“Chapter 7 Consumer Choice and Elasticity.” AP Microeconomics 2018, by Eric R. Dodge, McGraw Hill Education, 2017.

This equation, Midpoint Method for Price Elasticity of Demand, is used in 6 pages

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Midpoint Method for Price Elasticity of Demand

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