Suppose that in a month the price of a cup of coffee increases from $1 to $1.50. At the same time, the quantity of cups of coffee demanded decreases from 200 to 190. The price elasticity of demand for cups of coffee calculated using the midpoint formula)is:
A)zero.
B)inelastic.
C)unitary elastic.
D)elastic.

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated using the midpoint formula: [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)]. Substituting the values: [(190 - 200) / (190 + 200)/2] / [(1.50 - 1) / (1.50 + 1)/2] = -0.0526 / 0.4 = -0.1315. Since the absolute value is less than 1, the demand is inelastic.

Suppose That in a Month the Price of a Cup