Answer:
the decrease in price of used cars from $5000 to $3000 will lead to a rise in the demand of used cars by 60%
Explanation:
Mid-point method
The midpoint formula for calculating elasticity calculates change in quantity demanded and divides it by the change in the the price
The original formula is
(Q2-Q1) / (Q2-Q1)/2 / (P2-P1) / (P2-P1/2)
Q2 is new Quantity
Q1 is old quantity
P2 is new price
P1 is old price
Since we already have the Price elasticity of demand as -1.2
the formula changes to
Percentage Change in QUantity = Price Elasticity of demand x ( (P2-P1) / (P2-P1/2)
= -1.2 x (P2-P1) / (P2-P1/2)
= -1.2 x (3,000-5000) / (5000-3000/2)
-1.2 x (-2000/4000) x 100
= 60%
Therefore, the decrease in price of used cars from $5000 to $3000 will lead to a rise in the demand of used cars by 60%
