When the price of a cup of coffee falls from $3.00 to $2.50, the quantity demanded increases from 1,000 per month to 1,150 per month. Using the midpoint method, the price elasticity of demand is
A) 0.77.
B) 1.30.
C) 0.07.
D) 2.50.
E) 3.00.

Question

Quizplus · Accepted Answer

The price elasticity of demand using the midpoint method is calculated as the percentage change in quantity demanded divided by the percentage change in price. The percentage change in quantity demanded is (1150 - 1000) / ((1150 + 1000) / 2) = 150 / 1075 = 0.1395. The percentage change in price is (2.50 - 3.00) / ((2.50 + 3.00) / 2) = -0.50 / 2.75 = -0.1818. The elasticity is 0.1395 / -0.1818 = -0.77, which is approximately 0.77 in absolute value.

When the Price of a Cup of Coffee Falls from $3.00