Question

When the price of bubble gum is $1, the quantity demanded is 1,000 packs per day. When the price increases to $1.20, the quantity demanded decreases to 950. Given this information, we know that in this price range the demand for bubble gum is

a. inelastic.
b. elastic.
c. unit elastic.
d. perfectly inelastic.

Answer 1

B. Elastic.

Step-by-step explanation:

Here the midpoint method is the primary calculation method been used, it also calculates the price elasticity of demand by dividing the percentage change in purchase quantity by the percentage change in price.

Its advantages is that one obtains the same elasticity between two price points whether there is a price increase or decrease. This is because the formula uses the same base for both cases. The percentage changes are found by subtracting the original and updated values and then dividing the result by their average.