Final answer:
The price elasticity of demand can be calculated using the midpoint formula, which involves finding the percentage change in quantity and the percentage change in price. These values can then be used to determine the price elasticity of demand.
Step-by-step explanation:
The price elasticity of demand, based on the midpoint formula, is calculated as the percentage change in quantity divided by the percentage change in price. In this case, the price decreases from $12 to $10. To find the percentage change in quantity, subtract the initial quantity from the final quantity, and divide by the average of the initial and final quantities. Multiply this result by 100 to get the percentage change.
% change in quantity = (Q2 - Q1) / [(Q2 + Q1) / 2] * 100
Next, find the percentage change in price by subtracting the initial price from the final price, and divide by the average of the initial and final prices. Multiply this result by 100 as well.
% change in price = (P2 - P1) / [(P2 + P1) / 2] * 100
Finally, divide the percentage change in quantity by the percentage change in price to calculate the price elasticity of demand:
Price elasticity of demand = % change in quantity / % change in price