If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then according to the averaging equation, the value of price elasticity of demand in absolute terms is:
A) 0.33.
B) 2.33.
C) 0.25.
D) 3.

Question

Quizplus · Accepted Answer

The price elasticity of demand using the midpoint (averaging) method is calculated as: [(80-100)/((80+100)/2)] / [(2-1)/((2+1)/2)] = (-20/90) / (1/1.5) = -0.222 / 0.667 = -0.33. In absolute terms, it is 0.33.

If an Increase in the Price of a Product from $1