Midpoint Formula Economics

When you work in business or economic finance, you will be required to master such basics as demand and supply. More advanced roles and applications require that you be well conversant with the concepts of elasticity. The analytical skills to evaluate supply and demand elasticity are crucial in making business decisions. Acemyhomework is here to help you. In this section, we will discuss the midpoint elasticity formula and provide its illustrations.

Supply and demand

The prices of goods and services in the marketplace is determined through the law of supply and demand. The law of supply and demand is an economic relationship between the buyers and sellers of various products. This theory states that the price of the product depends on the buyers' demand and its availability. Where the price of a product is high in the market, suppliers are more willing to supply more.

What is supply and the factors affecting it?

This is the relationship between the prices of products and services and how available they are in the market.

Here are the factors affecting supply

  • Production costs
  • Competitors
  • Supply chain
  • Availability of materials
  • Supply chains

Price elasticity of demand

This is a measure that indicates how much change in quantity demanded is the experience in response to a change in price. The price elasticity of demand formula compares the quantity of goods purchased when at two differing price points. The coefficient derived shows the elasticity of demand for that product. The challenge with this formula is that it gives different results depending on the prices keyed in as the updated and initial price on a demand curve. Due to this inconsistency, the midpoint formula was developed. The midpoint formula is used to calculate price elasticity and gives the same result regardless of the price points of the demand curve.

The math/science

In science, this phenomenon is observed when changes in price or quantity supply have differing effects on demand. When changes in price or demand affect supply, this is an elastic relationship. Product consumption is not merely driven by the desire to consume a specific product.

 In some cases, consumers opt for other substitutes. In transportation, for example, the cost to commute via an automobile could be more expensive and require more time. In such a case, public transportation acts as a good substitute. Certain products are also not necessities, and consumers can do away with them.

Where an inelastic relationship exists, changes in price or in quantity supplied have no effect on demand. This mostly applies to products that are needful for our survival. 

Original price elasticity formula

The price elastic demand formula has been used for a long time to measure the effect of price changes on the quantity of demand. Elasticities are divided into five categories; Perfectly elastic, elastic, perfectly inelastic, inelastic, and unitary. Price elasticity of demand phenomenon observes fluctuations in prices effect on demand. 

 

The Midpoint Formula

To calculate the price elasticity of demand, the midpoint formula divides the percentage change in quantity purchased against the percentage change in price within the same period. To attain the percentage change, the original value is subtracted from the updated value and divided by the average of the two. If you get a negative value after deductions, use its absolute value by removing the negative sign.

This formula calculates the midpoint of two coordinates known to us. The midpoint formula is also used in getting the coordinates if the coordinates of the initial points are known. The elasticity coefficient can be calculated by simply estimating average elasticities for particular changes in two variables. The average percentage change is calculated based on the average of each valuable's initial and ending values.

The elasticity midpoint method formula

The Quantity percent change = (q2-q1)/[(q1+q2)/2]

multiplied by 100

Percentage change in price + (p2-p1)/[(p1+p2)/2]

multiplied by 100

The midpoint method formula 

·Draw a demand curve

The y-axis represents the price, while the x-axis represents the quantity. Have the demand curve you would like to analyze.

  • Mark the key data points

Mark the two data points on the curve that you would like to compare. For example, to illustrate the price elasticity at two points as P1 and P2 and quantity two points as Q1 and Q2.  

  • Use corresponding numbers on the midpoint formula.

With the figures in their corresponding place, use a calculator to get the formula.

  • Remove the negative sign to have an absolute value
  • Analyze the result

Where the result is greater than 1, price elasticity is responsive. Where the result is between 0 and 1, it is considered unresponsive. If the result is equal to zero, the price elasticity is considered proportional.

An example of how to calculate price elasticity using the

midpoint method

Let's use the below data points to calculate price elasticity

Q1=100

Q2=200

P1=10

P2=20

Percentage change in quantity= 200 less 100=100 divided by the sum of 200 and 100 divided by 2

=100/150, which will equal 0.667

percentage change in price= 20-10/(10+20)/2 which results in o.667.

 The result is one if you divide the percentage change in quantity with the percentage change in price. In this case, it can be deduced that the price elasticity is unresponsive.

What is arch elasticity?

Arch elasticity measures the sensitivity of one variable and another on two price points of the curve. It is used when proving the law of demand which explains the inverse relationship between demand and price. Price elasticity measures the responsiveness of demand to changes in price over a range of values.

Points to note

  • It is used in a non-uniform pricing model to measure the elasticity of price and demand products while ensuring profits.
  • Where the price change is minimal, you can use both price elasticity and arch elasticity to determine price changes.

Applications of Arch elasticity

Arch elasticity is used in the monopoly industry pricing. Where a monopolist believes the demand to be inelastic, with a smaller change in price, they are like to increase prices to gain more profit. A monopolist capitalizes on consumer willingness to pay and hikes his product price. A price increase will give him more profits with minimal or insignificant demand changes.

Elasticity is not a slope

Most people confuse the elasticity of the curve with its slope. Demand curves are often depicted as linear or straight lines. But what is the price elasticity of a straight-line demand curve? On a straight-line demand curve, price elasticity varies from zero to infinity. The slope of a straight-line demand curve has a constantly changing elasticity. It includes all five types of price elasticities. 

No two points on the straight-line demand curve will have the same elasticity.

Slope measures the flatness or steepness in terms of the measurement units for different quantities and prices. Elasticity is a measure of relative response to a change in price.

The slope equation is calculated as

slope=change in price divided by change in quantity demanded price elasticity of demand=percentage change in quantity divided by the percentage change in price.

Factors affecting value in price elasticity 

There are three factors that affect the numerical value of price elasticity of demand

  • Availability of substitutes

Where buyers can find a substitute for consumption with ease directly impacts the price elasticity of demand. Products with greater availability of substitutes are more sensitive to price increases or price decreases. 

  • Time period analysis

The longer the time period being analyzed, the more responsive the quantities are to the changes in price. A brief period of price changes does not allow consumers to adjust their consumption decisions. When price increases, buyers need time to find substitutes for products.

  • Proportion of budget

The price elasticity of demand is dependent on the proportion of the budget that buyers assign to a particular product. The larger the proportion in the budget, the more responsive is the quantity demanded in response to price changes.

Types of elasticity

  • Price elasticity of supply

This refers to the relative response of quantity supplied to changes in price. 

  • Income elasticity of demand

Income elasticity of demand is the relative response of demand to changes in income levels.

  • Cross elasticity of demand

This measures the relative response of demand to changes in prices of another product. Cross elasticity of demand quantifies the other prices demand determinants.

Need help using the Midpoint formula? Acemyhomework professional writers are here to help.

FAQs on the midpoint formula calculator economics

What is the midpoint formula in coordinate in Geometry?

This is the formula used to find the center of a straight line by using the coordinates of its endpoints.

What is the midpoint formula in words?

The midpoint formula is defined as half of the sum of x coordinates of two points and half the sum of the y coordinates.

Why is the midpoint formula important?

The midpoint formula has various applications in life, such as in constructions. In Geometry, it is used to find the meridian triangle. It is also used to find the midpoint of a line segment.

Can a midpoint be a fraction?

The midpoint can sometimes be a fraction. This will be dependent on the numerical values of the two points.

Can the midpoint be zero?

Yes, the midpoint can be zero.

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