Question

A popular clothing website sold five units of a dress when the price was $300

and 20 units when the price was marked down to $100.
What is the own-price elasticity of demand for the dress using the midpoint
formula?
1.25
2.5
-2
O-1.2

Answer 1

Using the midpoint formula, the own-price elasticity of demand for the dress can be calculated as follows:

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

where:
Q1 = 5 (quantity sold at the initial price of $300)
Q2 = 20 (quantity sold at the reduced price of $100)
P1 = $300 (initial price)
P2 = $100 (reduced price)

Plugging in the values, we get:
Elasticity = [(20 - 5) / ((5 + 20) / 2)] / [($100 - $300) / (($100 + $300) / 2)]
Elasticity = [15 / 12.5] / [-$200 / $200]
Elasticity = 1.2

However, since the question asks for the absolute value of the own-price elasticity, the answer is:
O-1.2 (rounded to one decimal place).