If the price of chocolate-covered peanuts decreases from $1.15 to $1.05 and the quantity demanded increases from 190 bags to 220 bags, then the price elasticity of demand (using the midpoint method) is:
A)0.5.
B)1.
C)2.
D)greater than 1.

Question

Quizplus · Accepted Answer

Using the midpoint method formula:

Price elasticity of demand = (change in quantity demanded / average quantity demanded) / (change in price / average price)
= [(220-190)/((220+190)/2)] / [(1.05-1.15)/((1.05+1.15)/2)]
= (30/205) / (-0.1/1.1)
= 1.46

Since the elasticity is greater than 1, it is considered to be elastic. This means that the change in quantity demanded is proportionately greater than the change in price. Therefore, a decrease in price caused the quantity demanded to increase by a larger percentage, indicating that the product is price-sensitive and consumers are responsive to changes in price.

If the Price of Chocolate-Covered Peanuts Decreases from $1