Question 3 (c)(i)
Mid-point price elasticity of demand for chocolate: Meera and Kavita
3 marks
- Time to write
- About 6 minutes
Question
Question 3 (c)(i) · 3 marksThe table below shows the total expenditure of Meera and Kavita on chocolates
| Total Expenditure (per month) on chocolates | ||
|---|---|---|
| Price (₹) | Meera | Kavita |
| 60 | 1080 | 600 |
| 48 | 960 | 720 |
- With the mid-point formula, calculate the price elasticity of demand for both Meera and Kavita when the price of chocolate rises from 48 to 60 rupees.
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- calculateFormula first, then the working, then the answer with its unit (₹, %, units).
Write it in this order
- 1 Mid-point formula and the quantities found from spending 1 mark 2 min
- 2 Meera's elasticity 1 mark 2 min
- 3 Kavita's elasticity 1 mark 2 min
Try it first. About 6 minutes for 3 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
The mid-point formula. Price elasticity of demand is eD = (% change in quantity demanded) ÷ (% change in price), read without its minus sign. The mid-point method measures each change against the average of the old and new values, so the result is the same whichever way the price moves:
eD = [ΔQ ÷ average Q] ÷ [ΔP ÷ average P].
Quantities bought. The table gives spending, not quantities, so each quantity is spending divided by price:
| Price ₹48 | Price ₹60 | |
|---|---|---|
| Meera | 960 ÷ 48 = 20 | 1,080 ÷ 60 = 18 |
| Kavita | 720 ÷ 48 = 15 | 600 ÷ 60 = 10 |
The price rises by ₹12 on an average price of (48 + 60) ÷ 2 = ₹54, a change of 12 ÷ 54 = 22.22%.
Meera. Quantity falls by 2 on an average of (20 + 18) ÷ 2 = 19, a change of 2 ÷ 19 = 10.53%. eD = 10.53% ÷ 22.22% = (2 ÷ 19) ÷ (12 ÷ 54) = 0.47 (9/19).
Kavita. Quantity falls by 5 on an average of (15 + 10) ÷ 2 = 12.5, a change of 5 ÷ 12.5 = 40%. eD = 40% ÷ 22.22% = (5 ÷ 12.5) ÷ (12 ÷ 54) = 1.8.
Answer. By the mid-point formula the price elasticity of demand for chocolate is about 0.47 for Meera (inelastic, below 1) and 1.8 for Kavita (elastic, above 1).
Where the 3 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Mid-point formula and the quantities found from spending | 1 |
| 2 | Meera's elasticity | 1 |
| 3 | Kavita's elasticity | 1 |
| Total | 3 |
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