The table below shows the quantities of automobiles, margarine, and coffee purchased by Ted at different levels of income.Table 6.2

-Suppose the price of a product is reduced from $10 to $6 and the quantity demanded increases from 40 to 60 units. From this we can conclude that the price elasticity of demand over this price range is equal to _____.
A)1.2
B)1.25
C)0.80
D)0.20
E)0.5

Question

The table below shows the quantities of automobiles, margarine, and coffee purchased by Ted at different levels of income.Table 6.2
 
-Suppose the price of a product is reduced from $10 to $6 and the quantity demanded increases from 40 to 60 units. From this we can conclude that the price elasticity of demand over this price range is equal to _____.
A)1.2 
B)1.25 
C)0.80 
D)0.20 
E)0.5

Quizplus · Accepted Answer

Price elasticity of demand (PED) = % change in Qd / % change in price
Using the midpoint formula:
% change in Qd = (60-40)/((60+40)/2) * 100% = 33.33%
% change in price = (10-6)/((10+6)/2) * 100% = 33.33%
PED = 33.33 / 33.33 = 1
Since PED > 1, demand is elastic. Therefore, the correct choice is B.

The Table Below Shows the Quantities of Automobiles, Margarine, and Coffee