Table 5-2

$$\begin{array} { | c | c | }
\hline \begin{array} { c }
\text { Price } \
\text { (Dollars per unit) }
\end{array} & \begin{array} { c }
\text { Quantity Demanded } \
\text { (Units) }
\end{array} \
\hline 100 & 0 \
\hline 80 & 50 \
\hline 60 & 100 \
\hline 40 & 150 \
\hline 20 & 200 \
\hline 0 & 250 \
\hline
\end{array}$$
-Refer to Table 5-2. Using the midpoint method, if the price falls from $80 to $60, the absolute value of the price elasticity of demand is
A)0.43.
B)2.33.
C)0.29.
D)0.67.

Question

Table 5-2
​
 $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Price } \
\text { (Dollars per unit) }
\end{array} & \begin{array} { c } 
\text { Quantity Demanded } \
\text { (Units) }
\end{array} \
\hline 100 & 0 \
\hline 80 & 50 \
\hline 60 & 100 \
\hline 40 & 150 \
\hline 20 & 200 \
\hline 0 & 250 \
\hline
\end{array}$$
-Refer to Table 5-2. Using the midpoint method, if the price falls from $80 to $60, the absolute value of the price elasticity of demand is
A)0.43.
B)2.33.
C)0.29.
D)0.67.

Quizplus · Accepted Answer

The midpoint method for calculating the price elasticity of demand is given by the formula: $$E_d = \frac{\left(\frac{Q_2 - Q_1}{(Q_2 + Q_1)/2}\right)}{\left(\frac{P_2 - P_1}{(P_2 + P_1)/2}\right)}$$ where $Q_1$ and $Q_2$ are the initial and final quantities demanded, and $P_1$ and $P_2$ are the initial and final prices, respectively. Plugging in the values from the table for a price drop from $80 to $60 ($P_1 = 80$, $P_2 = 60$, $Q_1 = 50$, $Q_2 = 100$), we get: $$E_d = \frac{\left(\frac{100 - 50}{(100 + 50)/2}\right)}{\left(\frac{60 - 80}{(60 + 80)/2}\right)} = \frac{\left(\frac{50}{75}\right)}{\left(\frac{-20}{70}\right)} = \frac{2/3}{-2/7} = -\frac{2}{3} \cdot \frac{7}{2} = -\frac{7}{3} \approx -2.33$$ The absolute value is taken because elasticity is usually considered as a positive number when discussing its magnitude, making the correct answer 2.33.

Table 5-2 ​ -Refer to Table 5-2

Table 5-2
-Refer to Table 5-2