Question

Suppose the price of Twinkies is reduced from $1.45 to $1.25 and, as a result, the quantity of Twinkies demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for Twinkies in the given price range is

Answer 1

The ped is 0.64 (rounded to 2 decimal places)

Step-by-step explanation:

Elasticity is the responsiveness of quantity demanded or sold with respect to price holding all other factors constant

Price elasticity of demand (Ped) is the change in quantity demanded in a given market as a result of changes in pricing of goods or services offered in that market.

Ped = percentage change in quantity demanded/ percentage change in price

The mid-point method is carried out in three steps:

1. Compute the average price and quantity given the changes in prices and quantity. In this case, average price is 1.35 ((1.45 +1.35)/2) and average quantity is 2100 ((2200 +2000)/2)
2. Calculate the percentage change in both price and quantity. Using the price average as the denominator. the percentage change in price is 14.815 ((1.25-1.45)/1.35) and the percentage change in quantity is 9.524 ((2200-2000)/2100)
3. Compute the Ped: 9.524/14.815 = 0.643

Note: the price elasticity of demand has no units

Answer 2

The price elasticity of demand for Twinkies in the given price range is 0.641.

Step-by-step explanation:

The price of Twinkies is reduced from $1.45 to $1.25.

The quantity of Twinkies demanded increases from 2,000 to 2,200.

Price elasticity of demand for Twinkies

=
`((Q2 - Q1)/((Q2 + Q1)/(2) ) )/((P2 - P1)/((P2 + P1)/(2) ) )`

=
`((2,200 - 2,000)/((2,200 + 2,000)/(2) ) )/((\$ 1.25 - \$ 1.45)/((\$ 1.25 + \$ 1.45)/(2) ) )`

=
`((200)/((4,200)/(2) ) )/((\$ 0.20)/((\$ 2.70)/(2) ) )`

=
`((200)/(2100) )/((\$ 0.20 )/(\$ 1.35) )`

=
`(0.095)/(0.148)`

= 0.641