Question

The publisher of an economics textbook finds that when the book's price is lowered from $70 to $60, sales rise from 10,000 to 15,000. Using the midpoint method, the price elasticity of demand is?

Answer 1

Price elasticity of demand is 2.6

Explanation:

The average percent change in both quantity and price is called the Midpoint Method for Elasticity.

Midpoint method for elasticity = (((Q2 - Q1) / (Q2 + Q1)/2) / ((P2 - P1) / (P2 + P1)/2))

By applying the above formulae for given problem:

• Midpoint method for elasticity = (((15000 - 10000) / (15000 + 10000)/2) / ((70 - 60) / (70 + 60)/2))
• Midpoint method for elasticity = ((5000 / 12500) / (10 / 65))
• Midpoint method for elasticity = (0.4 / 0.1538461538461538‬)
• Midpoint method for elasticity = 2.6