Assume the price of a product rises from $2 to $3 and the quantity demanded of the product decreases from 600 to 400.The price elasticity of demand coefficient,using the midpoint formula,is:
A) 0.40.
B) 1.00.
C) 1.60.
D) 2.10.
The change in quantity is (400 - 600)/(400 + 600)= 0.20 and the change in price is (3 - 2)/(3 + 2)= 0.20.Thus,price elasticity is 0.20/0.20 = 1.0.

Question

Quizplus · Accepted Answer

The price elasticity of demand coefficient using the midpoint formula is calculated as (change in quantity/change in average quantity)/ (change in price/change in average price). In this case, the change in quantity is 200 and the average quantity is (600+400)/2=500. The change in price is $1 and the average price is ($2+$3)/2=$2.5. So, the price elasticity of demand coefficient is (200/500)/(1/$2.5) = 1. Therefore, the correct answer is B.

Assume the Price of a Product Rises from $2 to $3