Suppose that in a month the price of pizza increases from $4 to $5. At the same time, the quantity of pizzas demanded decreases from 200 to 190. The price elasticity of demand for pizza (calculated using the midpoint formula) is
A) zero.
B) inelastic.
C) unit elastic.
D) elastic.

Question

Quizplus · Accepted Answer

The price elasticity of demand (PED) is calculated using the midpoint formula: PED = [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)]. Plugging in the given values: PED = [(190 - 200) / (190 + 200)/2] / [(5 - 4) / (5 + 4)/2] = -10/195 / 1/4.5 = -0.4. Since the absolute value of PED is less than 1 (0.4), the demand is inelastic.

Suppose That in a Month the Price of Pizza Increases