Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 0.75.Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?
A)a 7.5 increase in the price of the good
B)a 13.33 percent increase in the price of the good
C)an increase in the price of the good from $7.50 to $10
D)an increase in the price of the good from $10 to $17.50

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated using the midpoint method as follows:
Price elasticity of demand = (percentage change in quantity demanded) / (percentage change in price)

We need a 10% decrease in the quantity of the good demanded, which means the percentage change in quantity demanded is -10%. We can use this information and the price elasticity of demand to find the percentage change in price needed to achieve this:

0.75 = (-10%) / (percentage change in price)
Percentage change in price = (-10%) / 0.75
Percentage change in price = -13.33%

Therefore, a 13.33% increase in the price of the good is consistent with a 10% decrease in the quantity demanded. Choice B is the correct answer.

Using the Midpoint Method,the Price Elasticity of Demand for a Good