Suppose that in a month the price of movie rentals decreases from $3.25 to $3. At the same time, the quantity of movie rentals demanded increases from 100 to 120. The price elasticity of demand for movie rentals (calculated using the midpoint formula) is
A) zero.
B) inelastic.
C) unit elastic.
D) elastic.

Question

Quizplus · Accepted Answer

The midpoint formula for calculating price elasticity is [(Q2-Q1)/((Q2+Q1)/2)] / [(P2-P1)/((P2+P1)/2)]. Plugging in the values, we get [((120-100)/((120+100)/2))] / [((3-3.25)/((3+3.25)/2))] = 0.4. Since the result is less than 1, the demand is elastic.

Suppose That in a Month the Price of Movie Rentals