A specific calculation approach addresses the challenge of determining percentage change in economic variables, such as price and quantity demanded. This method calculates percentage change by dividing the change in the variable by the average of the initial and final values. For instance, if the price of a product increases from $10 to $12, the percentage change is calculated as (($12-$10)/(($10+$12)/2))*100, resulting in approximately 18.18%. This differs from a standard percentage change calculation which would use the initial value ($10) as the denominator.
Employing this calculation offers symmetry in elasticity measurements. Regardless of whether the movement is from point A to point B or from point B to point A on a demand curve, the elasticity value remains consistent. This avoids the ambiguity that arises when using the traditional percentage change formula, which can produce different elasticity values depending on the direction of movement. This consistency is valuable for economists and analysts when comparing elasticities across different goods or time periods, and when formulating or assessing economic policies. Its historical context lies in the need for a more robust and reliable method for measuring elasticity, especially in situations involving significant price or quantity changes.
