Suppose that at a price of €30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to €40 per month, the number of subscribers will fall to 20,000. Using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable TV in Small Town?
A) 1.4
B) 0.66
C) 0.75
D) 2.0
E) 1.0

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated using the midpoint method: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Substituting the given values: [(20,000 - 30,000) / (25,000)] / [(40 - 30) / (35)] = (-10,000 / 25,000) / (10 / 35) = -0.4 / 0.2857 = -1.4. The elasticity is 1.4 (ignoring the negative sign for absolute value).

Suppose That at a Price of €30 Per Month, There