Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then the absolute value of the price elasticity (using the midpoint formula) is
A) 4.00.
B) 2.09.
C) 1.37.
D) 3.94.

Question

Quizplus · Accepted Answer

Using the midpoint formula, we have:

Price elasticity = [(change in quantity / average quantity) / (change in price / average price)]
Price elasticity = [(118 - 110) / ((110 + 118)/2)] / [($1.90 - $2.00) / (($1.90 + $2.00)/2)]
Price elasticity = [8 / 114] / [-$0.10 / $1.95]
Price elasticity = 1.37 (rounded to two decimal places)

Therefore, the absolute value of the price elasticity is 1.37, which corresponds to choice C.

Suppose That as the Price of Y Falls from $2