Question

Jaycee Jeans sold 40 pairs of jeans at a price of​ $40. When it lowered its price to​ $20, quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of​ demand? Use the midpoint formula.

Answer 1

Answer:

0.6

Explanation:

Initial Units sold, Q1 = 40 pairs

Initial Price, P1 = $40

Final price, P2 = $20

Final units sold = 60 pairs

Now,

Using the midpoint formula,

the absolute value of the price elasticity of​ demand

price elasticity of​ demand = $\frac{\frac{Change in quantity sold}{\frac{Total quantity sold}{2}}}{\frac{Change in price}{\frac{Total price}{2}}}$

or

price elasticity of​ demand = $\frac{\frac{Q2-Q1}{\frac{Q1+Q2}{2}}}{\frac{P1-P2}{\frac{P2+P1}{2}}}$

or

price elasticity of​ demand = $\frac{\frac{60-40}{\frac{40+60}{2}}}{\frac{40-20}{\frac{40+20}{2}}}$

or

price elasticity of​ demand = $\frac{\frac{20}{50}}{\frac{20}{30}}$

price elasticity of​ demand =  0.6