Coble Company recently changed the selling price of one of its products. Data concerning sales for comparable periods before and after the price change are presented below. The product's variable cost is $15.70 per unit.
-The product's price elasticity of demand as defined in the text is closest to:
A) -1.51
B) -1.23
C) -2.09
D) -1.47

Question

Coble Company recently changed the selling price of one of its products. Data concerning sales for comparable periods before and after the price change are presented below.  The product's variable cost is $15.70 per unit.
-The product's price elasticity of demand as defined in the text is closest to:
A) -1.51 
B) -1.23 
C) -2.09 
D) -1.47

Quizplus · Accepted Answer

Using the midpoint formula, we can estimate the price elasticity of demand:
%Δ quantity demanded = [(new quantity demanded - old quantity demanded) / ((new quantity demanded + old quantity demanded) / 2)] x 100
%Δ price = [(new price - old price) / ((new price + old price) / 2)] x 100
Price elasticity of demand = %Δ quantity demanded / %Δ price

Using the data provided:
%Δ quantity demanded = [(1,200 - 1,000) / ((1,200 + 1,000) / 2)] x 100 = 20%
%Δ price = [(22 - 20) / ((22 + 20) / 2)] x 100 = 9.09%
Price elasticity of demand = 20%/9.09% = -2.2

Since we are dealing with a price decrease, we need to take the absolute value of the result, giving us approximately 2.09. Therefore, the answer is C, -2.09.

Coble Company Recently Changed the Selling Price of One of Its