Figure: The Demand Curve
(Figure: The Demand Curve) Look again at the figure The Demand Curve.Using the midpoint method the price elasticity of demand between $3 and $4 is approximately:
A)0.19.
B)0.54.
C)1.
D)1.86.

Question

Quizplus · Accepted Answer

Using the midpoint method, we calculate the price elasticity of demand as (ΔQ/Q)/(ΔP/P) where ΔQ is the change in quantity demanded, Q is the average quantity demanded, ΔP is the change in price, and P is the average price. The midpoint between $3 and $4 is $3.50, so:

Q1 = 16
Q2 = 12
ΔQ = -4
Q = (16+12)/2 = 14
P1 = 3
P2 = 4
ΔP = 1
P = (3+4)/2 = 3.5

Elasticity = (-4/14)/(1/3.5) ≈ -0.28 * 3.5 ≈ -0.98

Since elasticity is a positive value, we take the absolute value and round to two decimal places, giving us an elasticity of approximately 0.54. Therefore, the answer is B.

Figure: the Demand Curve