Suppose the price of a ticket to a Rolling Stones concert is $41 and, at that price, the quantity of tickets demanded is 17,000 per concert. Using the midpoint method of calculating percentage changes, if the Rolling Stones raises the price to $48 and the quantity demanded decreases to 16,000, the price elasticity of demand for their concert tickets is
A) 6.06.
B) 0.93.
C) 1.00.
D) 0.39.
E) 15.73.

Question

Quizplus · Accepted Answer

Price elasticity of demand can be calculated using the midpoint method formula:

Price elasticity of demand = [(Q2-Q1)/(Q1+Q2)/2] / [(P2-P1)/(P1+P2)/2]

Using the given values:

[(16,000-17,000)/[(16,000+17,000)/2]] / [(48-41)/[(48+41)/2]]

= [-1000/16,500] / [7/44.5]

= -0.0606 / 0.1573

= -0.3854

The negative sign indicates the inverse relationship between price and quantity demanded. To get a positive value, we can take the absolute value:

Price elasticity of demand = |-0.3854| = 0.39

Therefore, the price elasticity of demand for Rolling Stones concert tickets is approximately 0.39. The best choice is D.

Suppose the Price of a Ticket to a Rolling Stones