Suppose the price of a calculator is $18 and the quantity demanded is 90. When the price increases to $22, the quantity demanded drops to 70. Using the mid-point method, what is the price elasticity of demand for calculators?
A) −1.25
B) −25 percent
C) −20 percent
D) −25

Question

Quizplus · Accepted Answer

The price elasticity of demand using the mid-point method is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the change in quantity is from 90 to 70 (a decrease of 20), and the change in price is from $18 to $22 (an increase of $4). Using the mid-point method, the percentage change in quantity demanded is [(70 - 90) / ((70 + 90) / 2)] * 100 = (-20 / 80) * 100 = -25%. The percentage change in price is [(22 - 18) / ((22 + 18) / 2)] * 100 = (4 / 20) * 100 = 20%. The price elasticity of demand is then -25% / 20% = -1.25.

Suppose the Price of a Calculator Is $18 and the Quantity