Suppose the price of a can of tuna is $1.30 and the quantity demanded is 9. When the price increases to $1.50, the quantity demanded drops to 7. Using the mid-point method, what is the price elasticity of demand?
A) −1.75
B) −0.57
C) 0.57
D) 1.75

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 9 to 7 (a decrease of 2), and the change in price is from $1.30 to $1.50 (an increase of $0.20). Using the mid-point method, the percentage change in quantity demanded is -2 / ((9+7)/2) = -2 / 8 = -0.25, and the percentage change in price is 0.20 / ((1.30+1.50)/2) = 0.20 / 1.40 = 0.142857. The price elasticity of demand is then -0.25 / 0.142857 = -1.75.

Suppose the Price of a Can of Tuna Is $1