If the price rises from $2 to $3 and the quantity demanded falls from 500 to 300 units, the price elasticity of demand using the midpoint method is
A) 1.25.
B) 0.80.
C) 1.50.
D) 0.08.

Question

Quizplus · Accepted Answer

The midpoint method formula for price elasticity of demand is [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)]. Plugging in the values: [(300 - 500) / (300 + 500)/2] / [(3 - 2) / (3 + 2)/2] = (-200 / 400) / (1 / 2.5) = -0.5 / 0.4 = -1.25. The absolute value is 1.25.

If the Price Rises from $2 to $3 and the Quantity