A health club sells 50 memberships when the monthly price is $60 and 70 memberships when the monthly price is $40. The price elasticity of demand for memberships at this health club is (using the average values method):
A) 0.25.
B) 0.6.
C) 1.0.
D) 1.1.
E) 0.83

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated using the formula: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Substituting the given values: [(70 - 50) / (70 + 50) / 2] / [(40 - 60) / (40 + 60) / 2] = 20/60 / -20/50 = 0.33 / -0.4 = -0.83. The absolute value is 0.83.

A Health Club Sells 50 Memberships When the Monthly Price