A men's tie store sold an average of 30 ties per day at $5 per tie. The same store sold 60 of the same ties per day at $3 per tie. In this case, the price elasticity of demand (by the midpoint method) is:
A) greater than zero but less than 1.
B) equal to 1.
C) greater than 1 but less than 3.
D) greater than 3.

Question

Quizplus · Accepted Answer

The price elasticity of demand using the midpoint method is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the percentage change in quantity is ((60-30)/((60+30)/2)) = 66.67%, and the percentage change in price is ((3-5)/((3+5)/2)) = -50%. The elasticity is 66.67% / -50% = -1.33, which is greater than 1 but less than 3.

A Men's Tie Store Sold an Average of 30 Ties