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Mark and Jack are looking for a new pair of running shoes. Mark is working full time at the Reserve Bank of Australia and earns a higher income every month. Jack is still a student in high school and only receive a small amount of allowance per week. Jack's price elasticity for Nipe is M elastic as compared to Mark. Type L for Less, M for More or E for Equally. Assume now Nipe is trying to find out the price elasticity of their customers by changing the prices of their running shoes. When a pair of shoes is sold for $345, it is observed that Nipe can sell 5525 pairs of shoes within a day. When the price increases to $450, Nipe will only be able to sell 3250 pairs of shoes within a day. What is the price elasticity of demand using the mid-point formula? (give an absolute value i.e. a postive value) . Answer to the nearest 2 decimal places.

Question

Mark and Jack are looking for a new pair of running shoes. Mark is working full time at the Reserve Bank of Australia and earns a higher income every month. Jack is still a student in high school and only receive a small amount of allowance per week. Jack's price elasticity for Nipe is M elastic as compared to Mark. Type L for Less, M for More or E for Equally. Assume now Nipe is trying to find out the price elasticity of their customers by changing the prices of their running shoes. When a pair of shoes is sold for 345,itisobservedthatNipecansell5525pairsofshoeswithinaday.Whenthepriceincreasesto345, it is observed that Nipe can sell 5525 pairs of shoes within a day. When the price increases to 450, Nipe will only be able to sell 3250 pairs of shoes within a day. What is the price elasticity of demand using the mid-point formula? (give an absolute value i.e. a postive value) . Answer to the nearest 2 decimal places.

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Solution

To calculate the price elasticity of demand using the mid-point formula, we need to follow these steps:

  1. Calculate the percentage change in quantity demanded. This is done by subtracting the new quantity from the old quantity, dividing by the old quantity, and then multiplying by 100.

    So, (3250 - 5525) / ((3250 + 5525) / 2) * 100 = -41.38%

  2. Calculate the percentage change in price. This is done by subtracting the new price from the old price, dividing by the old price, and then multiplying by 100.

    So, (450 - 345) / ((450 + 345) / 2) * 100 = 27.91%

  3. Divide the percentage change in quantity demanded by the percentage change in price to get the price elasticity of demand.

    So, -41.38 / 27.91 = -1.48

Therefore, the price elasticity of demand is 1.48 (in absolute terms). This means that for every 1% increase in price, the quantity demanded decreases by 1.48%.

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