The Price Elasticity of Demand (Midpoint Method) calculator computes the Price Elasticity of Demand which measures how much the quantity demanded responds to changes in the price of a good.
INSTRUCTIONS: Choose currency units and enter the following:
- (P1) Price Point 1
- (Q1) Quantity Point 1
- (P2) Price Point 2
- (Q2) Quantity Point 2
Price Elasticity of Demand (PED): The calculator will compute Price Elasticity of Demand using the Midpoint Method. Note: the price points can have different currencies. The default is U.S. dollars (USD). However the user can use other currency units via the pull-down menu next to the input field.
The Math / Science
The formula for Midpoint Method of Price Elasticity of Demand is:
`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.