Question

Using the midpoints method, calculate the price elasticity of demand of Good X using the following information: When the price of good X is $50, the quantity demanded of good X is 400 units. When the price of good X rises to $60, the quantity demanded of good X falls to 300 units.
A. The price elasticity of demand for good X -123 e
B. The price elasticity of demand for good X -1.57.
C. The price elasticity of demand for good X-0.64

Answer 1

Answer:

Explanation:

In response to the price rise from $50 to $60, the quantity demanded of product X  drops from 400 to 300 units. We know that price elasticity of demand is a measure of the responsiveness of changes in demand as a result of a price change. Thus,

% change in price = $\frac{Change in price}{Average of the prices}$

          = $\frac{60-55}{55}$ = 0.1818

% Change in Quantity demanded

=$\frac{Change in quantity demanded}{Average quantity demanded}$

= $\frac{300-400}{350}$

= -0.2857

Thus,

Price elasticity of demand = $\frac{percentage change in quantity demanded}{percentage change in price}$

= $\frac{-0.2857}{0.1818}$

= -1.5715

Therefore, the price elasticity of demand = -1.5715