Use the midpoint method to compute the price elasticity on D1.
The midpoint method computes the percentage change in Q and P differently than the endpoint method. With the midpoint method, the percent change in P or Q is computed as a percent of the average of the beginning and ending values. For instance, on D1 the percent change in price is computed as a percent of 7.5 and the percent change in quantity is computed as a percent of 90.
The midpoint method has the advantage compared to the endpoint method that it yields the same value whether the price goes up or down over the same range, e.g. on the graph if the price moves from $10 to $5 vs. moving from $5 to $10 the midpoint yields the same number for price elasticity. The endpoint method yields a different number depending on whether the price increases from $5 to $10 or decreases from $10 to $5.
Transcribed Image Text:**Understanding Demand Curve Shifts**
In the graph provided, we observe a shift in the demand curve, illustrated by two different demand lines, \( D_1 \) (blue) and \( D_2 \) (red). This shift demonstrates how quantity demanded of a good changes in response to a change in price.
- **Axes**:
- The vertical axis (\( P \)) represents the price of the good.
- The horizontal axis (\( Q \)) represents the quantity demanded.
- **Original Demand Curve \( D_1 \)**:
- \( D_1 \) is the initial demand curve, depicted in blue.
- Initial price point \( B \) is at $10 for a quantity of 80 units.
- **New Demand Curve \( D_2 \)**:
- \( D_2 \) is the new demand curve, depicted in red.
- New price point \( A \) is at $5 for a quantity of 100 units.
- **Intersection Points**:
- Point \( B \) indicates the original price and quantity demanded: $10 and 80 units respectively.
- Point \( A \) indicates the new price and quantity demanded: $5 and 100 units respectively.
- Point \( C \) represents the intersection of the two demand curves.
### Analyzing the Percent Change in Price
The percent change in price due to the demand curve shift can be calculated as follows:
1. **Initial Price (P1)**: $10
2. **New Price (P2)**: $5
Using the formula for percent change:
\[ \text{Percent Change in Price} = \left( \frac{P2 - P1}{P1} \right) \times 100 \]
Plugging in the values:
\[ \text{Percent Change in Price} = \left( \frac{5 - 10}{10} \right) \times 100 \]
\[ \text{Percent Change in Price} = \left( \frac{-5}{10} \right) \times 100 \]
\[ \text{Percent Change in Price} = -50\% \]
Thus, the price has decreased by 50%.
This graph and computation demonstrate how shifts in demand can significantly impact market prices and quantities. It's crucial in economics to understand these dynamics for better decision-making in both policy and business contexts.
Video Video
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
![**Understanding Demand Curve Shifts**
In the graph provided, we observe a shift in the demand curve, illustrated by two different demand lines, \( D_1 \) (blue) and \( D_2 \) (red). This shift demonstrates how quantity demanded of a good changes in response to a change in price.
- **Axes**:
- The vertical axis (\( P \)) represents the price of the good.
- The horizontal axis (\( Q \)) represents the quantity demanded.
- **Original Demand Curve \( D_1 \)**:
- \( D_1 \) is the initial demand curve, depicted in blue.
- Initial price point \( B \) is at $10 for a quantity of 80 units.
- **New Demand Curve \( D_2 \)**:
- \( D_2 \) is the new demand curve, depicted in red.
- New price point \( A \) is at $5 for a quantity of 100 units.
- **Intersection Points**:
- Point \( B \) indicates the original price and quantity demanded: $10 and 80 units respectively.
- Point \( A \) indicates the new price and quantity demanded: $5 and 100 units respectively.
- Point \( C \) represents the intersection of the two demand curves.
### Analyzing the Percent Change in Price
The percent change in price due to the demand curve shift can be calculated as follows:
1. **Initial Price (P1)**: $10
2. **New Price (P2)**: $5
Using the formula for percent change:
\[ \text{Percent Change in Price} = \left( \frac{P2 - P1}{P1} \right) \times 100 \]
Plugging in the values:
\[ \text{Percent Change in Price} = \left( \frac{5 - 10}{10} \right) \times 100 \]
\[ \text{Percent Change in Price} = \left( \frac{-5}{10} \right) \times 100 \]
\[ \text{Percent Change in Price} = -50\% \]
Thus, the price has decreased by 50%.
This graph and computation demonstrate how shifts in demand can significantly impact market prices and quantities. It's crucial in economics to understand these dynamics for better decision-making in both policy and business contexts.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd3b445b4-cac0-4f0d-9c18-1a4527eab73b%2F79d2f658-755d-4a24-8f71-5b42ac813eda%2F5zhbfyp_processed.png&w=3840&q=75)
