Figure 7-5

-Refer to Figure 7-5.The absolute value of the price elasticity of demand at points a and b is 1.What is the value of Pb?
A) $50
B) $40
C) $30
D) $20

Question

Figure 7-5
 
-Refer to Figure 7-5.The absolute value of the price elasticity of demand at points a and b is 1.What is the value of Pb?
A) $50 
B) $40 
C) $30 
D) $20

Quizplus · Accepted Answer

Since the absolute value of the price elasticity of demand at points a and b is 1, it means that the percentage change in quantity demanded is the same as the percentage change in price. Therefore, we can use the midpoint formula to calculate Pb:
(Pa - Pb) / ((Pa + Pb) / 2) = 1
(Pa - Pb) = (Pa + Pb) / 2
2Pa - 2Pb = Pa + Pb
Pa = 3Pb
Since Pa is $120, we can calculate Pb:
Pa = 3Pb
$120 = 3Pb
Pb = $40
Therefore, the answer is B) $40.

Figure 7-5 -Refer to Figure 7-5.The Absolute Value of the Price Elasticity