Last week, Michelle spent $30 on caviar. Today, Michelle still spends $30 on caviar even though its price has doubled.
What is Michelle\'s price elasticity of demand for caviar?
(Use the midpoint formula for your calculation.)
To calculate Michelle's price elasticity of demand for caviar using the midpoint formula, we need the initial price, the final price, the initial quantity demanded, and the final quantity demanded.
Initial price (P1) = $30
Final price (P2) = $30 x 2 = $60
Initial quantity demanded (Q1) = ?
Final quantity demanded (Q2) = ?
The midpoint formula for price elasticity of demand is:
Price elasticity of demand = ((Q2 - Q1) / ((Q2 + Q1) / 2)) / ((P2 - P1) / ((P2 + P1) / 2))
Since both initial and final quantity demanded are unknown, we cannot calculate the price elasticity of demand accurately.
To find Michelle's price elasticity of demand for caviar, we will use the midpoint formula. The formula for price elasticity of demand is:
Elasticity = (% change in quantity demanded) / (% change in price)
First, let's calculate the % change in price:
Price change = New price - Original price
Price change = $30 x 2 - $30
Price change = $60 - $30
Price change = $30
% change in price = (Price change / Original price) x 100
% change in price = ($30 / $30) x 100
% change in price = 100%
Next, let's calculate the % change in quantity demanded. Since the quantity demanded remains the same at $30, the % change in quantity demanded will be 0%.
% change in quantity demanded = 0%
Now, we can use the midpoint formula to calculate Michelle's price elasticity of demand:
Elasticity = (% change in quantity demanded) / (% change in price)
Elasticity = 0% / 100%
Elasticity = 0
Therefore, Michelle's price elasticity of demand for caviar is 0, indicating that her demand for caviar is perfectly inelastic. This means that regardless of the price increase, Michelle would still spend the same amount of $30 on caviar.