Refer to the information provided in Figure 5.3 below to answer the questions that follow. Figure 5.3
-Refer to Figure 5.3. Using the midpoint formula, if the price of a gardenburger is decreased from $7 to $6, the price elasticity of demand equals ________, and the decrease results in a(n) ________ in total revenue.
A) -.13; decrease
B) -.69; increase
C) -1.44; increase
D) -13; increase

Question

Refer to the information provided in Figure 5.3 below to answer the questions that follow.  Figure 5.3
-Refer to Figure 5.3. Using the midpoint formula, if the price of a gardenburger is decreased from $7 to $6, the price elasticity of demand equals ________, and the decrease results in a(n) ________ in total revenue.
A) -.13; decrease 
B) -.69; increase 
C) -1.44; increase 
D) -13; increase

Quizplus · Accepted Answer

Using the midpoint formula:
% change in quantity demanded = [(Q1 - Q0) / ((Q1 + Q0) / 2)] x 100%
% change in price = [(P1 - P0) / ((P1 + P0) / 2)] x 100%

Plugging in the values:
% change in quantity demanded = [(25-30) / ((25+30)/2)] x 100% = -16.67%
% change in price = [(6-7) / ((6+7)/2)] x 100% = -7.69%
Price elasticity of demand = (% change in quantity demanded) / (% change in price) = (-16.67%) / (-7.69%) = 1.44

Since the price elasticity of demand is greater than 1, the decrease in price will result in an increase in total revenue.

Refer to the Information Provided in Figure 5