Question

If the price of chocolate-covered peanuts decreases from $1.10 to $0.90 and the quantity demanded increases from 190 bags to 210 bags, then the price elasticity of demand (by the midpoint method) is:

Answer 1

Answer:Price elasticity of demand = -0.05

Explanation:

Price elasticity of demand using the midpoint method= $\frac{(Q2- Q1)/(Q2+Q1)/2}{(P2- P1)/(P2+P1)/2}$

where  Q =Quantity demanded

P = Price

Price elasticity of demand =  ($\frac{(210-190/210+190)/2}{0.90-1.10/ 0.90+1.10)/2}$

 =     $\frac{20/400)/2 }{ -0.2/2)/2}$

0.025/ -0.05 = -0.05

Price elasticity of demand = -0.05

The Price elasticity of demand tells us how much quantity demanded changes in response to a change in price. Here the Demand for a good is  inelastic because  the PED coefficient is less than one -0.05

Answer 2

Answer:

Elasticity = 0.5

Explanation:

Elasticity is defined as the responsiveness of quantity demanded to changes in price. One of the methods used to calculate it is the midpoint method.

Midpoint method uses average values to calculate the elasticity of demand of a good.

Elasticity = {(Q2 - Q1) ÷ (Q1 + Q2)/2} ÷ {(P2 - P1) ÷ (P1 + P2)/2}

Elasticity = {(210 - 190) ÷ (210 + 190)/2} ÷ {(0.9 - 1.10) ÷ (0.9 + 1.10)/2}

Elasticity = 0.1 ÷ 0.2

Elasticity = 0.5