Suppose that 50 candy bars are demanded at a particular price. Using the midpoint method, if the price of candy bars rises by four per cent, the number of candy bars demanded falls to 46 candy bars. This means that the:
A) demand for candy bars in this price range is elastic
B) demand for candy bars in this price range is inelastic
C) price elasticity of demand for candy bars is zero
D) demand for candy bars is unit elastic

Question

Quizplus · Accepted Answer

Using the midpoint method, we calculate the price elasticity of demand as follows:
% change in quantity demanded = [(new quantity demanded - original quantity demanded) / (midpoint of original and new quantity demanded)] x 100%
% change in quantity demanded = [(46 - 50) / ((46 + 50) / 2)] x 100% = -8%
% change in price = 4%
Price elasticity of demand = % change in quantity demanded / % change in price
Price elasticity of demand = -8% / 4% = -2
Since the price elasticity of demand is greater than 1, the demand for candy bars in this price range is elastic. This means that a 4% increase in price leads to a more than proportionate decrease in quantity demanded (8% decrease).

Suppose That 50 Candy Bars Are Demanded at a Particular