Question

When the product price falls from $80 to $60, the quantity demanded rises from 500 to 800 units. Using the midpoint formula, the price elasticity of demand in this range is:

A. -1.62
B. -0.29
C. -0.62
D. 0.46

Answer 1

the correct answer is A. -1.62, indicating that the demand is relatively elastic in this particular price range.

Step-by-step explanation:

The question revolves around the concept of price elasticity of demand, which is calculated as the percentage change in quantity demanded divided by the percentage change in price. To find the elasticity using the midpoint formula, we follow these steps:

1. Calculate the average quantity (Q1 + Q2) / 2 = (500 + 800) / 2 = 650.
2. Calculate the average price (P1 + P2) / 2 = ($80 + $60) / 2 = $70.
3. Calculate the percentage change in quantity (Q2 - Q1) / average quantity x 100 = (800 - 500) / 650 x 100 = 46.15%.
4. Calculate the percentage change in price (P2 - P1) / average price x 100 = ($60 - $80) / $70 x 100 = -28.57%.
5. Finally, calculate the price elasticity of demand by dividing the percentage change in quantity by the percentage change in price = 46.15% / -28.57% = -1.62