Question

Using the midpoints method, calculate the price elasticity of demand of Good X using the following information: When the price of good X is $50, the quantity demanded of good X is 400 units. When the price of good X rises to $60, the quantity demanded of good X falls to 300 units.

A. The price elasticity of demand for good X -123 e
B. The price elasticity of demand for good X -1.57.
C. The price elasticity of demand for good X-0.64

Answer 1

Step-by-step explanation:

In response to the price rise from $50 to $60, the quantity demanded of product X drops from 400 to 300 units. We know that price elasticity of demand is a measure of the responsiveness of changes in demand as a result of a price change. Thus,

% change in price =
`(Change in price)/(Average of the prices)`

=
`(60-55)/(55)` = 0.1818

% Change in Quantity demanded

=
`(Change in quantity demanded)/(Average quantity demanded)`

=
`(300-400)/(350)`

= -0.2857

Thus,

Price elasticity of demand =
`(percentage change in quantity demanded)/(percentage change in price)`

=
`(-0.2857)/(0.1818)`

= -1.5715

Therefore, the price elasticity of demand = -1.5715