Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 1.45. Which of the following events is consistent with a 20 percent decrease in the quantity of the good demanded?
A)An increase of 29.0 percent in the price of the good
B)An increase of 13.79 percent in the price of the good
C)An increase in the price of the good from $29.00 to $20
D)An increase in the price of the good from $20 to $49.00

Question

Quizplus · Accepted Answer

The price elasticity of demand formula using the midpoint method is: Elasticity = (ΔQ / [(Q1 + Q2)/2]) / (ΔP / [(P1 + P2)/2]), where ΔQ is the change in quantity demanded, ΔP is the change in price, Q1 and Q2 are the initial and final quantities, and P1 and P2 are the initial and final prices. Given an elasticity of 1.45 and a 20% decrease in quantity demanded, the price must increase by approximately 13.79% to maintain this elasticity, as elasticity is the percentage change in quantity demanded divided by the percentage change in price.

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