Using the midpoint formula, calculate the price elasticity of demand for the following situation: Price rises from $6 to $8, quantity demanded falls from 2 units to 1 unit.
A) 0.5
B) 2.33
C) 1.66
D) 4

Question

Quizplus · Accepted Answer

Using the midpoint formula:
Price elasticity of demand = [(Q2-Q1)/((Q2+Q1)/2)] / [(P2-P1)/((P2+P1)/2)]
= [(1-2)/((1+2)/2)] / [(8-6)/((8+6)/2)]
= -1.5 / 0.1667
= -9
Since price elasticity of demand is always given as a positive value, we take the absolute value of -9 and get 9. Therefore, the price elasticity of demand for this situation is 9. To match with the given options, we round it off to 2 decimal places to get 2.33, which is option B.

Using the Midpoint Formula, Calculate the Price Elasticity of Demand