Suppose that, as the price of wheat falls from $10 to $8, the quantity demanded of wheat increases from 100 bushels to 150 bushels. Using the midpoint formula, the price elasticity of demand for wheat is 1.8.

Question

Quizplus · Accepted Answer

The midpoint formula for calculating price elasticity of demand is:

Price Elasticity of Demand = [(Q2 - Q1)/((Q2 + Q1)/2)] / [(P2 - P1)/((P2 + P1)/2)]

Using the given values:

Price Elasticity of Demand = [(150-100)/((150+100)/2)] / [($8-$10)/(($8+$10)/2)]

Price Elasticity of Demand = (50/125) / (-2/9)

Price Elasticity of Demand = 1.8

Therefore, the statement is true.

Suppose That, as the Price of Wheat Falls from $10