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 price elasticity of demand is
A)zero.
B)unit elastic.
C)inelastic.
D)elastic.

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 price elasticity of demand is
A)zero.
B)unit elastic.
C)inelastic.
D)elastic.

Quizplus · Accepted Answer

The midpoint method for calculating price elasticity of demand is given by the formula: $$E_d = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}$$ where $$\% \text{ change in quantity demanded} = \frac{Q_2 - Q_1}{(Q_2 + Q_1)/2}$$ and $$\% \text{ change in price} = \frac{P_2 - P_1}{(P_2 + P_1)/2}$$. Plugging in the values from the table for a price drop from $80 to $60 (Q1 = 50, Q2 = 100, P1 = 80, P2 = 60), we get: $$\% \text{ change in quantity demanded} = \frac{100 - 50}{(100 + 50)/2} = \frac{50}{75} = \frac{2}{3}$$ and $$\% \text{ change in price} = \frac{60 - 80}{(60 + 80)/2} = \frac{-20}{70} = -\frac{2}{7}$$. Thus, $$E_d = \frac{\frac{2}{3}}{-\frac{2}{7}} = -\frac{2}{3} * -\frac{7}{2} = \frac{7}{3}$$, which is greater than 1, indicating that the demand is elastic.

Table 5-2 ​ -Refer to Table 5-2

Table 5-2
-Refer to Table 5-2