When the price of milk is $3 per bottle,Steve consumes 20 bottles of milk.When the price increases to $6,Steve's consumption falls to 15 bottles.Therefore,Steve's arc elasticity of demand for milk is ________.
A) −0.25
B) −0.43
C) −0.50
D) −0.75

Question

Quizplus · Accepted Answer

To calculate arc elasticity of demand, we use the formula:

(arc price elasticity of demand) = [(Q2 - Q1) / (Q1 + Q2) / 2] / [(P2 - P1) / (P1 + P2) / 2]

Where:
Q1 = initial quantity demanded (20 bottles)
Q2 = new quantity demanded (15 bottles)
P1 = initial price ($3 per bottle)
P2 = new price ($6 per bottle)

Plugging in the values:

(arc price elasticity of demand) = [(15 - 20) / (15 + 20) / 2] / [(6 - 3) / (6 + 3) / 2]
(arc price elasticity of demand) = [-5 / 17.5] / [3 / 4.5]
(arc price elasticity of demand) = [-5 / 17.5] * [4.5 / 3]
(arc price elasticity of demand) = -0.43

Therefore, Steve's arc elasticity of demand for milk is -0.43. The best answer choice is B.

When the Price of Milk Is $3 Per Bottle,Steve Consumes