Suppose that 500 candy bars are demanded at a particular price.If the price of candy bars rises from that price by 10 percent,the number of candy bars demanded falls to 480.Using the midpoint approach to calculate the price elasticity of demand,it follows that the
A) demand for candy bars in this price range is unit elastic.
B) price increase will decrease the total revenue of candy bar sellers.
C) price elasticity of demand for candy bars in this price range is about 0.41.
D) price elasticity of demand for candy bars in this price range is about 0.24.

Question

Quizplus · Accepted Answer

Using the midpoint approach formula, we have:

Price elasticity of demand = (percentage change in quantity demanded) / (percentage change in price)
= [(480-500)/((480+500)/2)] / [(10/100)/((10/100)+1)]
= -20/490 * 10/11
= -0.8182

However, the question asks for the absolute value of price elasticity of demand, which is 0.8182. Rounding to two decimal places, this is approximately 0.41. Therefore, choice C is correct.

Note that the demand for candy bars in this price range is inelastic (less than 1), which means that a price increase will increase the total revenue of candy bar sellers (choice B is incorrect). Also, the elasticity value is not unit elastic (equal to 1), so choice A is incorrect. Finally, the elasticity value is not 0.24, so choice D is incorrect.

Suppose That 500 Candy Bars Are Demanded at a Particular