Suppose the price of a cookie is $2.50 and the quantity demanded is 50. When the price drops to $1, the quantity demanded increases to 200. Using the midpoint method, what is the price elasticity of demand?
A) −1.40
B) −0.72
C) −140
D) −7.2

Question

Quizplus · Accepted Answer

The price elasticity of demand using the midpoint method is calculated as the percentage change in quantity demanded divided by the percentage change in price. The formula is: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Plugging in the values: [(200 - 50) / ((200 + 50) / 2)] / [($1 - $2.50) / (($1 + $2.50) / 2)] = 150/125 / -1.5/1.75 = 1.2 / -0.857 = -1.40.

Suppose the Price of a Cookie Is $2