The price of headphones increases from $20 to $24. As a result, the quantity demanded falls from 33 to 27 per week. Calculate the price elasticity of this product using the midpoint method. Show the steps you use.
What will be an ideal response?
The average price is $22. The average quantity demanded is 30. So a $4 increase of headphone price causes a reduction in quantity demanded of headphones of 6. The percentage change in price is the change in price ($4) divided by the average price ($22). Thus, the percentage change of price is 18.18 percent. The percentage change in quantity is the change in quantity (6) divided by the average quantity (30). Thus, the percentage change of quantity is 20 percent. The price elasticity of demand is equal to the percentage change in quantity demanded (20) divided by the percentage change in price (18.18). Therefore, the price elasticity of demand is 1.1.
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What is the best definition of “inflationary bias” in this context?
Read the following passage and then answer the question that follows. Since 1995, the Bureau of Labor Statistics (BLS) has been eliminating or reducing biases in the Consumer Price Index (CPI). Many economists believe that the BLS improvements have cut inflationary bias in half, and it is now estimated to be less than 1 percentage point per year. a. the tendency to believe that inflation is beneficial to the economy b. the tendency to promote policies that cause a positive inflation rate c. the tendency to overstate the rate of inflation d. the tendency of the members of an economy to push prices up