When the price of bubble gum is $0.55,the quantity demanded is 400 packs per day.When the price falls to $0.45,the quantity demanded increases to 600.Given this information,and using the midpoint method,what do you know about the demand for bubble gum
A)It is inelastic.
B)It is elastic.
C)It is unit elastic.
D)It is perfectly inelastic.

Question

Quizplus · Accepted Answer

The midpoint method formula is (% change in quantity/% change in price) x 100. Using this formula, we find that the percentage change in quantity is ((600-400)/((600+400)/2)) x 100 = 33.33% and the percentage change in price is ((0.45-0.55)/((0.45+0.55)/2)) x 100 = -18.18%.

Thus, the price elasticity of demand is (33.33/-18.18) = -1.83, which is greater than 1. This means that the demand for bubble gum is elastic, meaning that a change in price leads to a relatively larger change in quantity demanded.

When the Price of Bubble Gum Is $0