A health club sells 50 memberships when the monthly price is $60 and 70 memberships when the monthly price is $40. Using the method of average values, the price elasticity of demand for memberships at this health club is
A) 6.00
B) 0.10
C) 1.00
D) 0.25
E) 0.83

Question

Quizplus · Accepted Answer

The price elasticity of demand (PED) is calculated using the formula: PED = (% change in quantity demanded) / (% change in price). Here, the change in quantity demanded is 70 - 50 = 20 memberships, and the change in price is $40 - $60 = -$20. The average quantity demanded is (70 + 50) / 2 = 60 memberships, and the average price is ($40 + $60) / 2 = $50. Thus, % change in quantity demanded = (20 / 60) * 100 = 33.33%, and % change in price = (-$20 / $50) * 100 = -40%. PED = 33.33% / -40% = -0.8333, which, in absolute value, is 0.83, indicating that the demand is somewhat elastic.

A Health Club Sells 50 Memberships When the Monthly Price