Figure 7-3
-Refer to Figure 7-3.The absolute value of the price elasticity of demand at points a and b is 1.What is the value of Pb?
A)$50
B)$40
C)$30
D)$20

Question

Figure 7-3 
-Refer to Figure 7-3.The absolute value of the price elasticity of demand at points a and b is 1.What is the value of Pb?
A)$50 
B)$40 
C)$30 
D)$20

Quizplus · Accepted Answer

From point a to point b, the price decreases from $60 to Pb. Since the absolute value of the price elasticity of demand is equal to 1, this means that the percentage change in quantity demanded is equal to the percentage change in price. Therefore, we can set up the following equation:
(40-30)/((40+30)/2) = (60-Pb)/((60+Pb)/2)
Solving for Pb, we get Pb = $40.

Figure 7-3 -Refer to Figure 7-3.The Absolute Value of the Price Elasticity