Figure 7-4

-Refer to Figure 7-4.The absolute value of the price elasticity of demand at points a and b is 1.What is the value of Pb?
A)$50
B)$40
C)$30
D)$20

Question

Figure 7-4
 
-Refer to Figure 7-4.The absolute value of the price elasticity of demand at points a and b is 1.What is the value of Pb?
A)$50 
B)$40 
C)$30 
D)$20

Quizplus · Accepted Answer

The absolute value of the price elasticity of demand (|Ed|) is 1 at points a and b, which indicates unit elasticity. This means that the percentage change in quantity demanded is equal to the percentage change in price. 
Using the midpoint formula, we can calculate the price at point b as follows:
|Ed| = [(Q2-Q1)/((Q2+Q1)/2)] / [(P2-P1)/((P2+P1)/2)]
1 = [(70-30)/((70+30)/2)] / [(Pb-50)/((Pb+50)/2)]
Solving for Pb, we get:
Pb - 50 = (70+30)/2 * (50/100)
Pb - 50 = 40
Pb = $40

Figure 7-4 -Refer to Figure 7-4.The Absolute Value of the Price Elasticity