If the price of chocolate-covered peanuts decreases from $1.05 to $0.95 and the quantity demanded increases from 180 bags to 220 bags, then the price elasticity of demand (using the midpoint method) is:
A)0.5.
B)1.
C)2.
D)greater than 2.

Question

Quizplus · Accepted Answer

Using the midpoint method formula:
Price elasticity of demand = [(Q2 - Q1)/((Q1 + Q2)/2)] / [(P2 - P1)/((P1 + P2)/2)]
Plugging in the values given:
Price elasticity of demand = [(220 - 180)/((220 + 180)/2)] / [(0.95 - 1.05)/((0.95 + 1.05)/2)]
Price elasticity of demand = [40/200] / [-0.1/1]
Price elasticity of demand = 0.2 / -0.1
Price elasticity of demand = -2
Since the price elasticity of demand (using the midpoint method) is greater than 2, the answer is D.

If the Price of Chocolate-Covered Peanuts Decreases from $1