Question

Suppose that as the price of y falls from $2.00 to $1.90, the quantity of y demanded increases from 110 to 118. then the absolute value of the price elasticity (using the midpoint formula) is

Answer 1

Given:
P₀ = $2.00, the original price
P₁ = $1.90, the new price
Q₀ = 110, the original demand
Q₁ = 118, the new demand

The price elasticity of demand is
$\eta = \frac{(Q_{1}-Q_{0})/(Q_{1}+Q_{0})}{(P_{1}-P_{0})/(P_{1}+P_{0})} \\\\ = \frac{8/228}{-0.1/3.9} \\\\ =-1.3684 \\\\ |\eta| = 1.3684$

Answer: |η| = 1.37  (nearest hundredth)

Answer 2

1.4545 First we calculate the price change percentage (2-1.9)/2 = -5% Then the change in demand percentage: (118-110)/110 = 7.27% the absolute value of the elasticity coefficient is then: |demand/price| = |.0727/-.05%| = | -1.4545| = 1.4545