Question

The price of notebooks is $5, and at that price consumers demand 12 notebooks. If the price rises to $7, consumers will decrease quantity demanded to 4 notebooks. Using the midpoint formula, what is the price elasticity of demand for notebooks? 0.17 3 0.33 6

Answer 1

The correct answer is 3

Step-by-step explanation:

The price elasticity of demand (PED) is the price a measure that is used to compute the extent to which the quantity of goods demanded by consumers changes, as a result of changes in price. Mathematically, it is represented as the percentage change in quantity demanded over the percentage change in the price. But, because of inconsistency in the elasticity of demand when moving up or down a slope in a price-demand curve, the midpoint formula is used, and it is represented thus:

PED =
`\frac{Q{2}-Q1 }{(Q2+Q1)/(2) }` ÷
`\frac{P{2}-P1 }{(P2+P1)/(2) }`

where Q1 = initial quantity demanded = 12

Q2 = New quantity demanded = 4

P1 = Initial price = $5

P2 = New price = $7

∴ PED =
`(4-12)/((4+12)/(2) )` ÷
`(7-5)/((7+5)/(2) )`

=
`(-8)/(8)` ÷
`(2)/(6)` =
`(-1)/(0.3333) = - 3.0 = 3`

Note that the negative sign shows that the the demand is reducing.

Answer 2

Answer: 3

Step-by-step explanation:

P1 = $5

P2 = $7

Q1 = 12

Q2 = 4

Percentage change in quantity demanded = [Q2 - Q1 / (Q2 + Q1) ÷ 2] × 100

= [4 - 12 / (4 +12) ÷ 2] × 100

= (-8 /8) × 100

= -100%

Percentage change in price= [P2 - P1/ (P2 + P1) ÷ 2] × 100

= [7-5 / (7+5) ÷ 2] × 100

= 2/6 × 100

=33.3

Midpoint elasticity= % change in quantity demanded / % change in price

= 100 / 33.3

= 3