Ahhh my comfort zone, haven't studied BEC yet, so here we go with some help from Wiki:
It's simply:
%Change in Quantity Demanded / %Change in Price = (change in Qd/Q) / (change in P/P)
However, to improve accuracy we can use the “Point-Price Elasticity” or “Arc – Elasticity”
Since differential calculus is not part of the CPA exam 🙁 *I'm guessing they want you to use Arc-Elasticity:
[(P1+P2/2) / (Q1+Q2/2)] x change Qd / change P **add a sprinkle of Algebra and we get:
(P1+P2 / Q1+Q2) x change Qd / change P
Which equals your midpoint formula (avg P and avg Q are your two coordinates of the midpoint of the straight line between the two given points) and implicitly assumes linearity between those two points for an accurate approximation of elasticity.
Economists do not like non-linearity, (everything worth studying in economics is pretty much non-linear as it involves complex systems of irrational human beings), which is why after a Bachelors and a M.A. in Economics I decided to pursue accounting which would allow me to actually perform a useful skill/service.
Hope this helped.
This reminded me how much I enjoy math as opposed to studying for the CPA exam, thanks 🙂
Now back to REG 🙁
AUD Pass
REG Fail, Rematch TBA
FAR 11/26 Certain I failed
BEC ?
Becker
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