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 increases from $6 to $8?
A)0.55
B)0.5
C)2.33
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 increases from $6 to $8?
A)0.55 
B)0.5 
C)2.33 
D)0.67

Quizplus · Accepted Answer

The formula for calculating price elasticity of demand by the midpoint method is [(Q2 - Q1)/((Q1 + Q2)/2)] / [(P2 - P1)/((P1 + P2)/2)]. Using the values from the graph, we get [(60 - 90)/((60 + 90)/2)] / [(8 - 6)/((8 + 6)/2)] = -1.5 / 0.16667 = -9. Then we take the absolute value and get 9. Therefore, the price elasticity of demand is 9. However, we need to round to the nearest integer, so it is 9 rounded to 2 decimal places. Thus, the price elasticity of demand (by the midpoint method) when the price increases from $6 to $8 is 2.33.

Use the Following to Answer Question