When the price of a cup of coffee falls from $3.00 to $2.50,the quantity demanded increases from 1,000 per month to 1,150 per month.Using the midpoint method,the price elasticity of demand is
A) 0.77.
B) 1.30.
C) 0.07.
D) 3.00.
E) 2.50.

Question

Quizplus · Accepted Answer

The midpoint method for calculating price elasticity of demand is:Ed = (% Change in Quantity Demanded) / (% Change in Price)% Change in Quantity Demanded = (1150 - 1000) / 1000 = 0.15% Change in Price = (2.50 - 3.00) / 3.00 = -0.17Ed = 0.15 / -0.17 = -0.88The price elasticity of demand is -0.88, which is closest to choice A, 0.77.

When the Price of a Cup of Coffee Falls from $3.00