As the price of bananas fell from $0.60 to $0.40 per pound, the quantity demanded rose from 300 pounds of bananas consumed to 500 pounds of bananas consumed. The price elasticity of demand (using the midpoint method) is
A) 0.80.
B) 1.00.
C) 1.25.
D) 1.50.

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. Using the midpoint method, the formula is: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)], where Q1 and Q2 are the initial and final quantities demanded, and P1 and P2 are the initial and final prices. Plugging in the given values: [(500 - 300) / ((500 + 300) / 2)] / [($0.40 - $0.60) / (($0.40 + $0.60) / 2)] = (200 / 400) / (-0.20 / 0.50) = 0.5 / -0.4 = -1.25. The negative sign indicates the direction of the change (price down, quantity up), but elasticity is usually considered in absolute terms, so the answer is 1.25.

As the Price of Bananas Fell from $0