Suppose that as the price of Y falls from $9 to $8, the quantity of Y demanded increases from 1,000 to 1,250. Then the absolute value of the price elasticity (using the midpoint formula)is approximately
A)250.
B)2.25.
C)1.89.
D)0.53.

Question

Quizplus · Accepted Answer

The price elasticity of demand using the midpoint formula is calculated as: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Plugging in the values: [(1250 - 1000) / (1250 + 1000) / 2] / [(8 - 9) / (8 + 9) / 2] = 250/1125 / -1/8.5 = 0.2222 / -0.1176 = 1.89 (absolute value).

Suppose That as the Price of Y Falls from $9