Use the following to answer question:
-(Figure: The Demand for e-Books)Use Figure: The Demand for e-Books.What is the price elasticity of demand (by the midpoint method)when the price decreases from $6 to $4?
A)0.55
B)0.5
C)1
D)0.67

Question

Use the following to answer question: 
-(Figure: The Demand for e-Books)Use Figure: The Demand for e-Books.What is the price elasticity of demand (by the midpoint method)when the price decreases from $6 to $4?
A)0.55 
B)0.5 
C)1 
D)0.67

Quizplus · Accepted Answer

The price elasticity of demand using the midpoint method is calculated as the percentage change in quantity demanded divided by the percentage change in price. When the price decreases from $6 to $4, the quantity demanded increases from 4 to 6. The formula for the midpoint method is [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)]. Plugging in the values: [(6 - 4) / ((6 + 4)/2)] / [(4 - 6) / ((4 + 6)/2)] = (2/5) / (-2/5) = -1. The absolute value is taken for elasticity, so it is 1.

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