Suppose the price of apples decreases from $1.00 to $0.80 each and, as a result, the quantity of apples demanded increases from 800 to 1,000. Using the midpoint method, the price elasticity of demand for apples in the given price range is
A)0.22.
B)0.5.
C)1.0.
D)4.5.

Question

Quizplus · Accepted Answer

The midpoint method formula for price elasticity of demand is [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Substituting the given values: [(1000 - 800) / (1000 + 800) / 2] / [(0.80 - 1.00) / (0.80 + 1.00) / 2] = [200 / 900] / [-0.20 / 0.90] = 0.222 / -0.222 = -1.0. The absolute value is 1.0.

Suppose the Price of Apples Decreases from $1