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(q1 – 92) (Pi – P2) 92 P2 Using the two data points here, compute elasticity for Boston using the formula relative to the second point. Round your answer to the nearest hundredth. Boston Subway Fare Annual Ridership (in millions) Year 1980 0.50 158 1981 0.75 143

(q1 – 92) (Pi – P2) 92 P2 Using the two data points here, compute elasticity for Boston using the formula relative to the second point. Round your answer to the nearest hundredth. Boston Subway Fare Annual Ridership (in millions) Year 1980 0.50 158 1981 0.75 143

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Here's the formula for price elasticity between two points (pl, q1) and (p2, q2): Aq Price Elasticity of Demand = Ap P1 Aq Rearrange the formula and use the assumption that Ap da to write a formula for price elasticity of demand at the point p. Select the correct formula below. dq dp lp1 P1 dg P1 dp lp • P1 da • 91 dp p. None of the above. Economists sometimes measure percent change relative to the midpoint between the two points. This is called arc or midpoint elasticity. Here's a formula for midpoint elasticity: .5 (n + 9)/P2 - pı) .5 (p1 + P2) (१2 - १) Compute elasticity for Boston from the period of 1980 to 1981 using midpoint elasticity. Round your answer to the nearest hundredth. (As you do this, think about why the formula looks like it does. For example, what is the midpoint between pl and p2? Does it matter if you compute using ql- q2 instead of q2- ql ?) Boston Subway Fare Annual Ridership (in millions) Year 1980 0.50 158 1981 0.75 143
Transcribed Image Text:Here's the formula for price elasticity between two points (pl, q1) and (p2, q2): Aq Price Elasticity of Demand = Ap P1 Aq Rearrange the formula and use the assumption that Ap da to write a formula for price elasticity of demand at the point p. Select the correct formula below. dq dp lp1 P1 dg P1 dp lp • P1 da • 91 dp p. None of the above. Economists sometimes measure percent change relative to the midpoint between the two points. This is called arc or midpoint elasticity. Here's a formula for midpoint elasticity: .5 (n + 9)/P2 - pı) .5 (p1 + P2) (१2 - १) Compute elasticity for Boston from the period of 1980 to 1981 using midpoint elasticity. Round your answer to the nearest hundredth. (As you do this, think about why the formula looks like it does. For example, what is the midpoint between pl and p2? Does it matter if you compute using ql- q2 instead of q2- ql ?) Boston Subway Fare Annual Ridership (in millions) Year 1980 0.50 158 1981 0.75 143
The formula for price elasticity of demand almost looks an average rate of change, the change in demand for a change in price, except that we're using percent change. With average rate of change, the order of the two points doesn't matter, as long as it is consistent. But with percent change, the order of points can matter, because we divide the change by the original quantity. For example, we looked at changes from 50 to 75 cents, so we divided by 50 cents. If we want to consider a price reduction from 75 cents to 50 cents, we would divide by 75 cents. Would the price elasticity of demand be the same? That's what you'll explore now. The formula would change to: (а — 2) / (p1 — рә) 92 P2 Using the two data points here, compute elasticity for Boston using the formula relative to the second point. Round your answer to the nearest hundredth. Boston Subway Fare Annual Ridership (in millions) Year 1980 0.50 158 1981 0.75 143
Transcribed Image Text:The formula for price elasticity of demand almost looks an average rate of change, the change in demand for a change in price, except that we're using percent change. With average rate of change, the order of the two points doesn't matter, as long as it is consistent. But with percent change, the order of points can matter, because we divide the change by the original quantity. For example, we looked at changes from 50 to 75 cents, so we divided by 50 cents. If we want to consider a price reduction from 75 cents to 50 cents, we would divide by 75 cents. Would the price elasticity of demand be the same? That's what you'll explore now. The formula would change to: (а — 2) / (p1 — рә) 92 P2 Using the two data points here, compute elasticity for Boston using the formula relative to the second point. Round your answer to the nearest hundredth. Boston Subway Fare Annual Ridership (in millions) Year 1980 0.50 158 1981 0.75 143
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