Question

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

Answer 1

Answer:

Price elasticity of demand = -0.6667

Explanation:

The price elasticity of demand for a good, using the midpoint method is calculated as:

$E=\frac{(Q2-Q1)/[(Q2+Q1)/2]}{(P2-P1)/[(P2+P1)/2]}$

Where Q1 is the quantity demanded when the price is P1 and Q2 is the quantity demanded when the price is P2.

Replacing, Q1 by 500, P1 by 50, Q2 by 400 and P2 by 70, we get that the price elasticity of demand for good A is:

$E=\frac{(400-500)/[(400+500)/2]}{(70-50)/[(70+50)/2]}\\E=-0.6667$