Suppose that in a month the price of movie rentals decreases from $3.25 to $3. At the same time, the quantity of movie rentals demanded increases from 100 to 120. The price elasticity of demand for movie rentals calculated using the midpoint formula)is:

Question

Quizplus · Accepted Answer

The price elasticity of demand using the midpoint formula is calculated as the percentage change in quantity demanded divided by the percentage change in price. The percentage change in quantity is (120-100)/((120+100)/2) = 0.1818, and the percentage change in price is (3-3.25)/((3+3.25)/2) = -0.0781. The elasticity is 0.1818 / -0.0781 = -2.33, which is greater than 1 in absolute value, indicating that demand is elastic.

Suppose That in a Month the Price of Movie Rentals