Last year the price of corn was $3 per bushel and the quantity of corn demanded was 8 million bushels. This year the price of corn is $4 per bushel and the quantity of corn demanded is 7 million bushels. Assuming that the demand curve has not shifted, what is the price elasticity of demand for corn? (Use the midpoint formula.)
A) 1
B) 0.47
C) 2.14
D) 0.29

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated using the midpoint formula: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Substituting the given values: [(7 - 8) / (7 + 8) / 2] / [(4 - 3) / (4 + 3) / 2] = (-1 / 7.5) / (1 / 3.5) = -0.47. The elasticity is 0.47 (absolute value).

Last Year the Price of Corn Was $3 Per Bushel