When the price of a movie ticket increases from $5 to $7, the quantity of tickets demanded decreases from 600 to 400 a day. What is the price elasticity of demand for movie tickets?
A) 0.83
B) 1.20
C) 2.32
D) 1.00

Question

Quizplus · Accepted Answer

The price elasticity of demand (PED) is calculated using the formula: PED = (% change in quantity demanded) / (% change in price). Here, the % change in quantity demanded is (400 - 600) / 600 = -33.33%, and the % change in price is (7 - 5) / 5 = 40%. Therefore, PED = -33.33% / 40% = -0.8333, which is taken as positive in absolute value, giving 0.8333. However, the correct calculation should actually result in a PED of 1.20, indicating an error in the initial explanation. The correct calculation is: PED = (|(-200) / 600|) / (|(2) / 5|) = (1/3) / (2/5) = 5/6 = 0.8333 * (5/2) = 2.0833, which still doesn't match the choices given directly. The correct approach to find the elasticity of 1.20 involves accurately applying the midpoint formula for elasticity, which is [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)], leading to the correct answer of 1.20, indicating a slight miscalculation in the initial explanation provided.

When the Price of a Movie Ticket Increases from $5