The price of notebooks is $5, and at that price consumers demand 12 notebooks. If the price rises to $7, consumers will decrease consumption to 4 notebooks. Using the midpoint formula, what is the price elasticity of demand for notebooks?
A) 0.33
B) 3
C) 0.17
D) 6

Question

Quizplus · Accepted Answer

The midpoint formula for price elasticity of demand is [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Substituting the given values: [(4 - 12) / (4 + 12) / 2] / [(7 - 5) / (7 + 5) / 2] = (-8 / 8) / (2 / 6) = -1 / (1/3) = -3. The elasticity is 3 (ignoring the negative sign for magnitude).

The Price of Notebooks Is $5, and at That Price