Question

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is 0.33 0.45 2.20 3.00

Answer 1

2.20

Step-by-step explanation:

The Price elasticity will be:

Δdemand/ΔPrice

The mid point is used to calculate the increases.

Δdemand = ΔQ/midpointQ

(Q2+Q1)/2 = mid point quantity = (300+ 200)/2 = 250

ΔQ = 300-200 = 100

Δdemand = 100/250 = 0.4

Same procedure is applied with the Price numbers:

Δprice = ΔP/midpointP

(P2+P1)/2 = mid point price = (3+ 2.5)/2 = 2.75

ΔP = 2.5-3 = 0.5

Δprice = 0.5 / 2.75 = 0.181818

FInally we calculate the price elasticity:

Δdemand/ΔPrice

0.4/0.1818181818 = 2.2