When the price of bubble gum is $0.50,the quantity demanded is 400 packs per day.When the price falls to $0.40,the quantity demanded increases to 600.Given this information and using the midpoint method,we know that the demand for bubble gum is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly inelastic.

Question

Quizplus · Accepted Answer

Using the midpoint method, we can calculate the price elasticity of demand as:

Price elasticity of demand = (change in quantity demanded / average quantity demanded) / (change in price / average price)

= [(600 - 400) / ((600 + 400) / 2)] / [(0.40 - 0.50) / ((0.40 + 0.50) / 2)]

= 0.4 / (-0.05)

= -8

Since the absolute value of the price elasticity of demand is greater than 1, we know that the demand for bubble gum is elastic, meaning that a small change in price leads to a relatively large change in quantity demanded.

When the Price of Bubble Gum Is $0