Question

Supposed the used bookstore sells 70 economics books per month at $15.00 each. If they lower the price to $7.00 each, they sell 90. If so, the price elasticity of demand for economics books, calculated using the midpoint method is

Answer 1

The answer is 0.34 (inelastic)

Step-by-step explanation:

The Price Elasticity of Demand (PED) is a measure of how much the quantity of a good or service changes, relative to the change in the price of the good or service.

Mathematically, it is represented as:

PED = (% change in quantity demanded) ÷ (% change of price)

% change in quantity demanded =
`(Q_2-Q_1)/(((Q_2+Q_1))/(2) ) * 100`

% change in price =
`(P_2-P_1)/(((P_2+P_1))/(2) ) * 100`

where:

Q₁ = initial quantity demanded = 70

Q₂ = new quantity demanded = 90

P₁ = initial price = $15

P₂ = new price = $7

Therefore:

% change in quantity demanded =
`(90-70)/(((90+70))/(2) ) * 100 = (20)/(80) *100`

=25%

% change in price =
`(7-15)/(((7+15))/(2) ) * 100 =(-8)/(11) * 100`

= -72.73%

∴ PED = (25%) ÷ (-72.73%) = -0.34.

since PED is less than 1, it is referred to as inelastic.

if PED is greater than 1, it is elastic