Question

The Cozy Chair Company believes it can sell 200 chairs at $200 per chair, or 300 chairs at $150 per chair. Using the midpoint formula, you can calculate that the price elasticity of demand (to the nearest tenth) for Cozy Chairs is:___________

Answer 1

Answer:

1.4

Explanation:

Given that

Q1 = 200

P1 = $200

Q2 = 300

P2 = $ 150

Recall that

Midpoint formula = Q2 - Q1/(Q2 + Q1)/2 ÷ P2 - P1/(P2 + P1)/2

= 300 - 200/(300 + 200)/2 ÷ 150 - 200/(150 + 200)/2

= 100/250 ÷ -50/175

= 0.4 ÷ 0.285

= 1.4

Answer 2

Answer:

1.4 elastic

Explanation:

the midpoint formula for calculating price elasticity of demand (PED) is:

PED = {(Q2 - Q1) / [(Q2 + Q1) / 2]} / {(P2 - P1) / [(P2 + P1) / 2]}

PED = {(300 - 200) / [(300 + 200) / 2]} / {(150 - 200) / [(150 + 200) / 2]}

PED = (100 / 250) / (-50 / 175) = 0.4 / -0.29 = -1.4* ⇒ 1.4 price elastic

PED measures how the quantity demanded of a price changes in proportion to a change in its price:

• PED > 1, price elastic, meaning that a 1% change in price will result in a proportionally larger change in quantity demanded
• PED < 1, price inelastic, meaning that a 1% change in price will result in a proportionally smaller change in quantity demanded
• PED = 1, price unit elastic, meaning that a 1% change in price will result in a proportionally equal change in quantity demanded

*PED is measured in absolute terms.