Suppose that the price of unlimited monthly wireless data plans increases from $80 to $120, and as a result, the quantity demanded of this plan decreases by 10%. Using the midpoint method, the price elasticity of demand is
A) 0.20.
B) 0.25.
C) 4.
D) 5.

Question

Quizplus · Accepted Answer

The midpoint method for calculating elasticity is given by the formula: [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)], where Q1 and Q2 are the initial and final quantities, and P1 and P2 are the initial and final prices. Applying the given values: [(0.9Q - Q) / (0.95Q)] / [($120 - $80) / ($100)] = -0.1 / 0.4 = -0.25. The negative sign indicates the direction of the change (demand decreases as price increases), but elasticity is often reported as an absolute value, making the answer 0.25.

Suppose That the Price of Unlimited Monthly Wireless Data Plans