In the market for backpacks, 100 backpacks are sold at $40 each. Then a fall in wages results in sales of 500 backpacks at a price of $20 each. Using the midpoint method, what is the absolute value of the elasticity of demand for backpacks?
A) 0.125
B) 0.5
C) 2
D) 8

Question

Quizplus · Accepted Answer

Using the midpoint method, the percentage change in price is:

((40 - 20)/((40 + 20)/2)) * 100% = 50%

The percentage change in quantity demanded is:

((500 - 100)/((500 + 100)/2)) * 100% = -66.67%

Thus, the absolute value of the elasticity of demand is:

|-66.67%/50%| = 1.33

Since this value is greater than 1, demand for backpacks is considered elastic. Rounded to one significant figure, the answer is 2. Therefore, the answer is choice C.

In the Market for Backpacks, 100 Backpacks Are Sold at $40