quantity and price. This is called the Midpoint Method for Elasticity, and is represented in the following

equations:

The advantage of the Midpoint Method is that one obtains the same elasticity between two price points
whether there is a price increase or decrease. This is because the formula uses the same base (average

quantity and average price) for both cases.

Calculating Price Elasticity of Demand

Let’s calculate the elasticity between points A and B and between points G and H as Figure 5.2 shows.
114 5 • Elasticity

FIGURE 5.2 Calculating the Price Elasticity of Demand We calculate the price elasticity of demand as the

percentage change in quantity divided by the percentage change in price.

First, apply the formula to calculate the elasticity as price decreases from $70 at point B to $60 at point A:

Therefore, the elasticity of demand between these two points is

which is 0.45, an amount smaller than
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