The price of notebooks is $5, and at that price consumers demand 12 notebooks.If the price rises to $7, consumers will decrease consumption to 4 notebooks.Using the midpoint formula, what is the price elasticity of demand for notebooks?
A)1/3
B)3
C)1/6
D)6

Question

Quizplus · Accepted Answer

Price elasticity of demand using midpoint formula is:

(P2 - P1) / ((P1 + P2)/2) / (Q2 - Q1) / ((Q2 + Q1)/2)

= ($7-$5) / (($7+$5)/2) / (4-12) / ((4+12)/2)

= 2 / 6 / -4 / 8

= -0.0833

Since the elasticity value is between 0 and -1, demand for notebooks is relatively inelastic. Therefore, a price increase will cause a relatively smaller decrease in the quantity demanded.

Thus, option B is correct.

The Price of Notebooks Is $5, and at That Price