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Microeconomics – ACCA Paper BT

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  1. Hi, thank you for the lectures so far, they were invaluable.

    On the example for price elacticity of demand (from 7:46)
    Change in price from $8 to $6 results change in demand from 1500 to 2000. The revenue is $12,000 in both cases. Elacticity surely must be exactly 1.

    When calculating the proportional change in price and demand, something called midpoint elacticity uses the average of the initial and final point and divides the change with this average:
    proportional change in price = 2/7 = 28.57%, 7 being the average of $8 and $6.
    proportional change in demand = 500/1750 = 28.57%, 1750 being the average of 1500 and 2000.

    This formula does give us elacticity of 1 = 28.57/28.57.

    • Hello Kris! Thank you for your contribution. By reading your explanation on average proportional change in elasticity, it makes sense, but I still have some doubts on it. I hope the professor could clarify that for us. Cheers.

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