Refer to the accompanying table to answer the questions. $$\begin{array} { | l | c | c | }
\hline \begin{array} { l }
\text { Price of } \
\text { Erasers }
\end{array} & \begin{array} { l }
\text { Quantity } \
\text { Demanded of } \
\text { Erasers }
\end{array} & \begin{array} { l }
\text { Quantity } \
\text { Demanded of } \
\text { Pencils }
\end{array} \
\hline \$ .50 & 10 & 12 \
\hline \$ 1.00 & 8 & 11 \
\hline \$ 1.50 & 7 & 10 \
\hline \$ 2.00 & 6 & 9 \
\hline \$ 2.50 & 5 & 8 \
\hline
\end{array}$$
-The price of erasers increases from $0.50 to $1.00 per eraser. Use the midpoint method to calculate the cross-price elasticity of demand between pencils and erasers.
A) -0.13
B) 7.67
C) -7.67
D) 0.13
E) -3

Question

Refer to the accompanying table to answer the  questions. $$\begin{array} { | l | c | c | } 
\hline \begin{array} { l } 
\text { Price of } \
\text { Erasers }
\end{array} & \begin{array} { l } 
\text { Quantity } \
\text { Demanded of } \
\text { Erasers }
\end{array} & \begin{array} { l } 
\text { Quantity } \
\text { Demanded of } \
\text { Pencils }
\end{array} \
\hline \$ .50 & 10 & 12 \
\hline \$ 1.00 & 8 & 11 \
\hline \$ 1.50 & 7 & 10 \
\hline \$ 2.00 & 6 & 9 \
\hline \$ 2.50 & 5 & 8 \
\hline
\end{array}$$
-The price of erasers increases from $0.50 to $1.00 per eraser. Use the midpoint method to calculate the cross-price elasticity of demand between pencils and erasers.
A) -0.13
B) 7.67
C) -7.67
D) 0.13
E) -3

Quizplus · Accepted Answer

The cross-price elasticity of demand is calculated using the midpoint method: $(\Delta Q_d / \text{average } Q_d) / (\Delta P / \text{average } P)$. The change in quantity demanded of pencils is -1, and the average quantity is 11.5. The change in price of erasers is 0.50, and the average price is 0.75. Thus, the elasticity is $(-1/11.5) / (0.50/0.75) = -0.13$.

Refer to the Accompanying Table to Answer the Questions