Question

The publisher of an economics textbook finds that, when the book's price is lowered from $70 to $60, sales rise from 10,000 to 15,000. By the midpoint method, the price elasticity of demand is:

Answer 1

Price elasticity of demand = 2.6

Step-by-step explanation:

Given:

Old price (P0) = $70

New price (P1) = $60

Old sales (Q0) = 10,000 units

New sales (Q1) = 15,000 units

Computation of Price elasticity of demand(e):

Midpoint method

`e=((Q1-Q0)/((Q1+Q0)/(2) ) )/((P1-P0)/((P1+P0)/(2) ) )`

By putting the value:

`e=((10,000-15,000)/((10,000+15,000)/(2) ) )/((60-70)/((60+70)/(2) ) )\\e=((-5,000)/((25,000)/(2) ) )/((-10)/((130)/(2) ) )\\`

`e=((-5,000)/(12,500) )/((-10)/(65) )`

e = 2.6