Suppose that in a month the price of movie rentals decreases from $3.25 to $3. At the same time, the quantity of movie rental
s demanded increases from 100 to 120. The price elasticity of demand for movie rentals (calculated using the midpoint formula) is:
a. elastic.
b. zero.
c. inelastic.
d. unitary elastic.
a. elastic.
b. zero.
c. inelastic.
d. unitary elastic.
1 answer:
Answer:
The correct answer is option a.
Explanation:
The initial price of movie rentals is $3.25.
The initial quantity is 100.
The price falls to $3.
This causes demand to rise to 120.
The price elasticity of demand a ratio of change in quantity demanded to change in price level.
The elasticity is calculated at -2.25, through the process given in images.
The price elasticity of demand here is greater than 1 which means it is elastic.
So, option a is the correct answer.
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