When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly inelastid.

Question

Quizplus · Accepted Answer

The midpoint method formula is: 
% Change in Quantity Demanded / % Change in Price = (New Quantity Demanded - Original Quantity Demanded) / [(New Quantity Demanded + Original Quantity Demanded) / 2] / (New Price - Original Price) / [(New Price + Original Price) / 2]

Using the given values:
% Change in Quantity Demanded = (700 - 400) / [(700 + 400) / 2] * 100 = 57.14%
% Change in Price = ($10 - $15) / [($10 + $15) / 2] * 100 = -33.33%

Therefore, the absolute value of the elasticity of demand is 57.14% / -33.33% = 1.71, which is greater than 1. This shows that the demand is elastic.

When the Price of an EBook Is $15