Question

Suppose that when the price of a movie ticket is $4, 100 people attend the matinee. If the price is increased to $5, suppose that only 50 people attend the matinee. Using the midpoint method in numeral form, the absolute value of the price elasticity of demand is _____.

Answer 1

Answer:

3

Explanation:

Price elasticity of demand refers to degree of responsiveness of quantity demanded to a change in price.

Price elasticity of demand is calculated as;

average price = $\frac{5\ +\ 4}{2}$ = $4.5

Average quantity = $\frac{100\ +\ 50}{2}$ = 75

Elasticity of demand ($E_{d}$) is given by $\frac{change\ in\ quantity}{average\ quantity}$  ÷ $\frac{change\ in\ price}{average\ price}$

= $\frac{100\ -\ 50}{75}$ ÷ $\frac{5\ -\ 4}{4.5}$

= 3

Thus absolute value (ignoring the negative sign of change in prices) of price elasticity of demand is 3.