Suppose that, as the price of product A falls from $5 to $4, the quantity of A demanded increases from 2,000 to 6,000 units. In this case, what is the elasticity of demand, using the midpoint formula?
A)0.9
B)0.4
C)4.5
D)1.6
E)3.0

Question

Quizplus · Accepted Answer

Using the midpoint formula, we have:

Elasticity of demand = [(change in quantity demanded / average quantity demanded) / (change in price / average price)]

= [(6000-2000) / ((6000+2000)/2)] / [(4-5) / ((4+5)/2)]

= (4000/4000) / (-1/4.5) = 4.5

Suppose That, as the Price of Product a Falls from $5