Suppose at $10 the quantity demanded is 100.When the price falls to $8,the quantity demanded increases to 130.The price elasticity of demand (using the midpoint formula)between $10 and $8 is approximately:
A)1.17.
B)1.50.
C)0.85.
D)1.00.

Question

Quizplus · Accepted Answer

The midpoint formula for price elasticity of demand is: $E_d = \frac{\% \Delta QD}{\% \Delta P}$, where $\Delta QD$ is the change in quantity demanded and $\Delta P$ is the change in price. Using the midpoint formula, the change in quantity demanded is from 100 to 130, and the change in price is from $10 to $8. The midpoint for quantity is $\frac{100 + 130}{2} = 115$, and the midpoint for price is $\frac{10 + 8}{2} = 9$. Thus, $\% \Delta QD = \frac{130 - 100}{115} \approx 0.2609$ or 26.09%, and $\% \Delta P = \frac{8 - 10}{9} \approx -0.2222$ or -22.22%. Therefore, $E_d = \frac{0.2609}{-0.2222} \approx -1.17$. The elasticity is negative, indicating the inverse relationship between price and quantity demanded, but we often refer to the absolute value when discussing elasticity, making the correct answer approximately 1.17.

Suppose at $10 the Quantity Demanded Is 100