Question

Suppose a local bank increases the fees they charge for their bank accounts by 5 percent. in​ response, the demand for their bank accounts decreases from 30 comma 000 to 2 comma 500. what is price elasticity of demand for this​ bank's accounts? using the midpoint​ formula, the price elasticity of demand is

Answer 1

-0.34

Step-by-step explanation:

Given that,

Percentage increase in prices = 5%

Initial quantity demanded = 30,000

New quantity demanded = 2,500

By midpoint method,

Average quantity :

= (Initial quantity + New quantity) ÷ 2

= (30,000 + 2,500) ÷ 2

= 16,250

Change in quantity = (2,500 - 30,000)

= -27,500

Therefore, the price elasticity of demand is as follows:

= (Change in demand ÷ Average quantity demanded) ÷ Percentage increase in prices

= (-27,500 ÷ 16,250) ÷ 5

= -1.69 ÷ 5

= -0.34