Suppose that 50 ice cream cones are demanded at a particular price.If the price of ice cream cones rises from that price by 4 percent,the number of ice cream cones demanded falls to 46.Using the midpoint approach to calculate the price elasticity of demand,it follows that the
A)demand for ice cream cones in this price range is elastic.
B)demand for ice cream cones in this price range is inelastic.
C)demand for ice cream cones in this price range is unit elastic.
D)price elasticity of demand for ice cream cones in this price range is 0.

Question

Quizplus · Accepted Answer

The midpoint approach to calculating the price elasticity of demand is given by:```Ed = (Q2 - Q1) / ((Q2 + Q1) / 2) * (P2 - P1) / ((P2 + P1) / 2)```where:* Q1 is the initial quantity demanded* Q2 is the final quantity demanded* P1 is the initial price* P2 is the final pricePlugging in the values given in the question, we get:```Ed = (46 - 50) / ((46 + 50) / 2) * (P2 - P1) / ((P2 + P1) / 2)``````Ed = -4 / 48 * (P2 - P1) / ((P2 + P1) / 2)```Since the price increased by 4%, we have:```P2 = 1.04 * P1```Substituting this into the equation, we get:```Ed = -4 / 48 * (1.04 * P1 - P1) / ((1.04 * P1 + P1) / 2)``````Ed = -4 / 48 * 0.04 * P1 / (1.02 * P1)``````Ed = -1 / 60.48``````Ed = -0.0165```Since the price elasticity of demand is negative, the demand for ice cream cones in this price range is elastic.

Suppose That 50 Ice Cream Cones Are Demanded at a Particular