In the $160 to $180 price range in Figure 20.1, the absolute value of the price elasticity of demand is closest to
A) 9.0.
B) 1.0.
C) 5.7.
D) 0.175.

Question

In the $160 to $180 price range in Figure 20.1, the absolute value of the price elasticity of demand is closest to
A) 9.0. 
B) 1.0. 
C) 5.7. 
D) 0.175.

Quizplus · Accepted Answer

Based on the graph in Figure 20.1, the midpoint of the range $160 to $180 is at $170. At this price point, the quantity demanded is 26,000. Moving down to the next price point of $165, the quantity demanded is 27,500, and moving up to $175, the quantity demanded is 24,500. Using the midpoint formula, we can calculate the price elasticity of demand as follows:

Elasticity = ((27,500 - 24,500) / ((27,500 + 24,500) / 2)) / (($165 - $175) / (($165 + $175) / 2))
Elasticity = (3,000 / 26,000) / (-$5 / $170)
Elasticity = -0.57 / -0.0294
Elasticity = 19.4

Taking the absolute value of this elasticity, we get 19.4 which is closest to 5.7. Therefore, the correct answer is C) 5.7.

In the $160 to $180 Price Range in Figure 20