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Using the midpoint method, what is the price elasticity of demand for a product whose price increased from $2 to $4 and whose quantity demanded decreased from 10 units to 5 units?

a. 0.5
b. 0.4
c. -0.5
d. 1.0

User CPhil
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1 Answer

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To calculate the price elasticity of demand using the midpoint method, we can use the following formula:

Price Elasticity of Demand = (Percentage change in quantity demanded) / (Percentage change in price)

First, let's calculate the percentage change in quantity demanded:

Percentage change in quantity demanded = [(New quantity demanded - Old quantity demanded) / ((New quantity demanded + Old quantity demanded) / 2)] * 100%

In this case:

New quantity demanded = 5 units

Old quantity demanded = 10 units

Percentage change in quantity demanded = [(5 - 10) / ((5 + 10) / 2)] * 100%

= (-5 / 7.5) * 100%

= -66.67%

Next, let's calculate the percentage change in price:

Percentage change in price = [(New price - Old price) / ((New price + Old price) / 2)] * 100%

In this case:

New price = $4

Old price = $2

Percentage change in price = [(4 - 2) / ((4 + 2) / 2)] * 100%

= (2 / 3) * 100%

= 66.67%

Now, let's calculate the price elasticity of demand:

Price Elasticity of Demand = (Percentage change in quantity demanded) / (Percentage change in price)

= (-66.67% / 66.67%)

= -1.0

Therefore, the price elasticity of demand for the product is -1.0.

The correct answer is:

d. -1.0

User Jason Swett
by
7.4k points

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