Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and,as a result,the quantity of tortilla chips demanded increases from 200 bags to 300 bags.Using the midpoint method,the price elasticity of demand for tortilla chips in the given price range is
A)0.33.
B)0.45.
C)2.20.
D)3.00.

Question

Quizplus · Accepted Answer

The midpoint method formula for price elasticity of demand is [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Plugging in the values: [(300 - 200) / (300 + 200) / 2] / [($2.50 - $3.00) / ($2.50 + $3.00) / 2] = (100 / 250) / (-0.50 / 2.75) = 0.4 / -0.1818 = -2.20. The absolute value is 2.20.

Suppose the Price of a Bag of Tortilla Chips Decreases