Suppose that in a month the price of a cup of coffee increases from $1 to $1.50. At the same time, the quantity of cups of coffee demanded decreases from 200 to 190. The price elasticity of demand for cups of coffee (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)] / [($1.50 - $1) / (($1.50 + $1)/2)] = -10 / 195 / 0.5 / 1.25 = -0.32. Since the absolute value of PED is less than 1, the demand is inelastic.

Suppose That in a Month the Price of a Cup