Question

Suppose a company raises its price from $20 to $24, and its quantity demanded falls from 10,000 units to 9,000 units. Using the midpoint method,the price elasticity of demand is

Answer 1

0.5

Step-by-step explanation:

A company raise its price from $20 to $24

Change in price = 24-20/20

= 4/20

= 0.2

The quantity demanded falls from 10,000 units to 9,000 units

Change in quantity= 9,000-10,000/10,000

= -1000/10000

= -0.1

Therefore the price elasticity of demand can be calculated as follows

= -0.1/0.2

= 0.5

Hence the price elasticity of demand is 0.5