Use the midpoint method to answer this question. When a good's price increases from $20 to $25 and its quantity demanded decreases from 100 to 75, the elasticity of demand for that good is:
A) unit elastic.
B) inelastic.
C) perfectly inelastic.
D) elastic.

Question

Quizplus · Accepted Answer

Using the midpoint method formula, we can calculate the elasticity of demand as follows:

Elasticity of Demand = ([(% change in Quantity Demanded)/2]/[(% change in Price)/2])

= (([(75-100)/((75+100)/2)])/([(25-20)/((25+20)/2)]))

= (-25/87.5)/(5/22.5)

= -2.857

Since the elasticity of demand is greater than 1, the answer is D) elastic.

Use the Midpoint Method to Answer This Question