A poultry rancher discovered that when she increased the price of organic eggs from $0.75 to $1.00 per dozen, the sales of her eggs fell from 300 dozen per week to 200 dozen per week. Her price elasticity of demand (using the midpoint method) would be
A) 2.60.
B) 1.40.
C) 0.75.
D) 1.00.

Question

Quizplus · Accepted Answer

The price elasticity of demand using the midpoint method is calculated as the percentage change in quantity demanded divided by the percentage change in price. The formula is: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)], where Q1 and Q2 are the initial and final quantities, and P1 and P2 are the initial and final prices. Plugging in the values: [(200 - 300) / ((200 + 300) / 2)] / [($1.00 - $0.75) / (($1.00 + $0.75) / 2)] = (-100 / 250) / (0.25 / 0.875) = -0.4 / 0.2857 = -1.4 (in absolute value, since elasticity is usually considered as a positive number), which gives an elasticity of 1.40.

A Poultry Rancher Discovered That When She Increased the Price