Question

As the price of bananas fell from $0.60 to $0.40 per pound, the quantity demanded rose from 300 pounds of bananas consumed to 500 pounds of bananas consumed. The price elasticity of demand (using the midpoint method) is:____________

Answer 1

-1.25

Step-by-step explanation:

Given that,

Initial quantity demanded = 300

Initial price = $0.60

New quantity demanded = 500

New price = $0.40

Mid-point method is used here,

Average quantity demanded:

= (Initial quantity demanded + New quantity demanded) ÷ 2

= (300 + 500) ÷ 2

= 400

Average price = (Initial price + New price) ÷ 2

= ($0.60 + $0.40) ÷ 2

= $0.5

Therefore,

Change in quantity demanded:

= (New quantity demanded - Initial quantity demanded) ÷ Average quantity demanded

= (500 - 300) ÷ 400

= 0.5

Change in price:

= (New price - Initial price) ÷ Average price

= ($0.40 - $0.60) ÷ $0.5

= -0.4

Hence, the price elasticity of demand is as follows:

= Change in quantity demanded ÷ Change in price

= 0.5 ÷ -0.4

= -1.25