The owner of a local pretzel cart has estimated that if he lowers the price of pretzels from $4.00 to $3.00, he will increase sales from 800 to 1,100 pretzels per day. Using the midpoint formula, the demand for pretzels is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.

Question

Quizplus · Accepted Answer

The midpoint formula for elasticity is [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)]. Plugging in the given values: [(1100 - 800) / ((1100 + 800)/2)] / [($3.00 - $4.00) / (($3.00 + $4.00)/2)] = 300/950 / -1/3.5 = 0.3158 / -0.2857 = -1.105 (approximately). The absolute value of this result is greater than 1, indicating that the demand is elastic.

The Owner of a Local Pretzel Cart Has Estimated That