Question

When the price of coffee increased from 4.50 to 5.55, the quantity demanded decreased from 185 units to 150 units sold. Using the midpoint method, what is the price elasticity of demand?

Answer 1

The price elasticity of demand can be calculated using the midpoint method. In this case, the price elasticity of demand is -0.98, indicating that the goods are inelastic.

Step-by-step explanation:

The price elasticity of demand is calculated using the midpoint formula. It measures the responsiveness of quantity demanded to a change in price. The formula for the midpoint method is:

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

Using the given information:

Q1 = 185 units

Q2 = 150 units

P1 = $4.50

P2 = $5.55

Plugging in the values into the formula:

Elasticity = ((150 - 185) / ((150 + 185) / 2)) / ((5.55 - 4.50) / ((5.55 + 4.50) / 2))

Solving the equation gives us:

Elasticity = -0.98

Therefore, the price elasticity of demand, using the midpoint method, is -0.98. Since the value is negative, it indicates that the goods are inelastic, meaning that a change in price has a proportionately smaller effect on quantity demanded.