Label demand as elastic, unit elastic, or inelastic for each scenario. Use the midpoint method when applicable to calculate the price elasticity of demand.

Contain Yourself!, a plastic container company, raises the price of its signature Lunchbox container from $3.00$3.00 to $4.00$4.00. As a result, the quantity sold drops from 20,000 to 15,000.

Economists working for the United States have determined that the elasticity of demand for gasoline is 0.50.5.

Capital Metro decides to increase bus fare rates from $2.00$2.00 to $2.21$2.21. Consequently, the number of passengers who decide to take the bus in Austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day.

Elasticity describes market behaviour in response to changes in prices. Elasticity of demand focuses on the sensitivity of demand to changes in price. Unit elasticity(when elasticity is equal to 1) means that the quantity demanded changes in direct proportion to changes in price. Inelasticity (when elasticity is less than 1) means that the quantity demanded changes less than proportionately in relation to the changes in price whereas elasticity(when elasticity is greater than 1) means that the quantity demanded would change more than proportionately to the changes in price.

Elasticity is calculated by dividing the percentage change in quantity demanded brought about by the associated percentage change in price. It is computed via the mid-point method as follows:

Calculating average price and quantity
Computing the difference between the new and old prices as well as the difference between the new and old quantities.
The difference from step 2 is then divided by the average calculated in step 1.

The elasticity of the lunchbox container:

Average price = $3.5 (($3 + $4)/2)

Average quantity = 17,500 ((15000+20000)/2)

Difference in price = $1

Difference in quantity= 5000

Percentage change in price =0.286 (1/3.5)

Percentage change in quantity= 0.286 (5000/17500)

Elasticity of demand = 1 (0.286/0.286) that is to say, the demand for lunchbox containers is unit elastic, there is a proportionate change in quantity demanded arising from the change in price

The elasticity of gasoline is given as 0.5 indicating that it is inelastic, that is to say, the quantity of gasoline demanded does not change easily following a change in the price of gasoline

The elasticity of the bus tickets:

Average price = $ 2.105(($2 + 2.21$)/2)

Average quantity = 65,500 ((70000+61000)/2)

Difference in price = $0.21

Difference in quantity= 9000

Percentage change in price =0.0998 (0.21/2.105)

Percentage change in quantity= 0.137 (9000/65500)

Elasticity of demand = 1.373(0.137/0.0998) that is to say, the demand for bus tickets is elastic, the quantity demanded in very sensitive to changes in bus fares