Question

Use the midpoint method to calculate the price elasticity of demand for potato chips that increased in price from $2.00 to $3.00. The quantity demanded decreased from 100 bags a week to 50 bags a week at the local grocery store. Round to one decimal place

Answer 1

Answer:

$e_p$ ≅ -1.7.

Explanation:

Let's calculate the change in quantity:

$\frac{Q_2 - Q_1}{\frac{Q_2+Q_1}{2} } = \frac{50-100}{\frac{50+100}{2} } = (approx.) -0.67.$

Let's now calculate the change in price:

$\frac{P_2 - QP_1}{\frac{P_2+P_1}{2} } = \frac{3.00-2.00}{\frac{3.00+2.00}{2} } = 0.40.$

Finally, let's calculate the price elasticity of demand:

$e_p = \frac{-0.67}{0.40} = (approx) -1.7.$