Using the midpoints formula, what would be price elasticity of demand for a gallbladder operation if the number of operations fell from 6,000 to 4,000 per week after its price increased from $6,000 to $10,000?
A) 0.25.
B) 0.50.
C) 0.80.
D) 1.25

Question

Quizplus · Accepted Answer

Price elasticity of demand = ((change in quantity demanded / average quantity demanded) / (change in price / average price))

Using the midpoints formula:

Change in quantity demanded = (4000-6000)/((4000+6000)/2) = -0.333
Average quantity demanded = (4000+6000)/2 = 5000
Change in price = (10000-6000)/((10000+6000)/2) = 0.5
Average price = (10000+6000)/2 = 8000

Price elasticity of demand = ((-0.333 / 5000) / (0.5 / 8000)) = -0.8

Since the price elasticity of demand is negative, we take the absolute value and get 0.8. Therefore, the best choice is C, 0.80.

Using the Midpoints Formula, What Would Be Price Elasticity of Demand