Suppose that in a month the price of pizza increases from $4 to $5. At the same time, the quantity of pizzas demanded decreases from 200 to 190. The price elasticity of demand for pizza calculated using the midpoint formula)is:

Question

Quizplus · Accepted Answer

The price elasticity of demand using the midpoint formula is calculated as: [(190-200)/((190+200)/2)] / [(5-4)/((5+4)/2)] = (-10/195) / (1/4.5) = -0.23. Since the absolute value is less than 1, the demand is inelastic.

Suppose That in a Month the Price of Pizza Increases