Suppose that as the price of Y falls from$3.00 to $2.80, the quantity of Y demanded increases from200 to 210. Then the absolute value of the price elasticity (using the midpoint formula)is approximately
A)0.6.
B)1.41.
C)0.71.
D)1.5.

Question

Quizplus · Accepted Answer

The midpoint formula for price elasticity of demand is: |(ΔQ / [(Q1 + Q2)/2]) / (ΔP / [(P1 + P2)/2])|, where ΔQ is the change in quantity demanded, ΔP is the change in price, Q1 and Q2 are the initial and final quantities, and P1 and P2 are the initial and final prices. Plugging in the given values: |(210 - 200) / [(210 + 200)/2]) / (($2.80 - $3.00) / [($2.80 + $3.00)/2])| = |10 / 205| / |-0.20 / 2.90| ≈ |0.04878 / -0.06897| ≈ 0.71.

Suppose That as the Price of Y Falls From$3