Question

Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula

A) 0.6
B) 1.67
C) 1.0
D) 0.53

Answer 1

The answer is: A) 0.6

Step-by-step explanation:

First we will calculate the midpoint for units:

• change in units = 40 - 60 = -20
• average units = (40 + 60) / 2 = 50
• midpoint for units = 20 / 50 = 0.4 (we only use positive numbers)

Now we will calculate the midpoint for price:

• change in price = 40 - 20 = 20
• average price = (40 + 20) / 2 = 30
• midpoint for units = 20 / 30 = 0.67

Finally we divide 0.4 / 0.67 = 0.6