When we calculate “% change in quantity demanded / % change in price” in the formula for Price elasticity of demand, the denominator of “% change in price” is taken as beginning value or average of beginning and final values? I don’t have access to my CFAI text here, and wikipedia says that beginning value shud be used, which is the case AFA I remember. Mr. Schweser thinks otherwise … hehe… Please let me know what is correct on the exam. George’s Appliance Center sells big screen televisions. On a representative model, when the price was reduced from $2,450 to $2,275, monthly demand increased from 175 to 211 units. What is the price elasticity of demand? A) -2.14. B) -1.69. C) -2.53. D) -3.21. Your answer: A was incorrect. The correct answer was C) -2.53. Price elasticity of demand = % change in quantity demanded / % change in price % change in quantity = (211 − 175) / [(211 + 175)/2] = 0.187 % change in price = (2,275 − 2,450) / [(2,275 + 2,450)/2] = -0.074 Price elasticity of demand = 0.187 / -0.074 = -2.53
Yes, you take the difference and diviide by average. This is the case in all CFAI material.
How are you taking the exam in june and not have the CFA text?
I think he said he didn’t have it where he was, possibly at work? I study at work but don’t lug my books around.
yep… amberpower is right on the spot!.. and hey thanks Dreary… this forum rocks!!