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Homework Statement
The formula for price elasticity in my micro/macroeconomics course is:
elasticity =
For those unable to view the image:
(change in quantity / avg quantity)/(change in price / avg price)
My question is: Why is it that the average quantity/price is used instead of just the initial quantity/price (in reference to the part in brackets in the numerator and denominator?
In economics, the value which the equations spits out has significance:
>1 = elastic
1 = unit-elastic
<1 = inelastic
The Attempt at a Solution
I thought you would just divide by initial quantity; like how you would in a rate of change formula:
change x/change y
so [(q2-q1)/q1]/[(p2-p1)/p1]
I tried the 2 formulas on an excel spreadsheet, with the following results:
Original equation on right, my equation on the right
http://puu.sh/l4RCy/efce1c651b.png
NOTE: The value that looks to be 1 is really 0.96, with less decimals
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