Ceteris paribus, if the price of a good decreases from $32 to $24 and the quantity demanded of the good increases from 80 units sold to 100 units sold, the price elasticity of demand (using the midpoint method) for that good is
A) 1.00.
B) 0.29.
C) 0.78.
D) 1.20.

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Using the midpoint method, the percentage change in quantity demanded is (100 - 80) / ((100 + 80) / 2) = 20 / 90 = 0.222. The percentage change in price is (24 - 32) / ((24 + 32) / 2) = -8 / 28 = -0.286. Therefore, the price elasticity of demand is 0.222 / -0.286 = -0.78.

Ceteris Paribus, If the Price of a Good Decreases from $32