Question

When Sam's Sandwiches were priced at $6, he sold 70 each day during lunch. When he reduced the price to $4 a sandwich, he sold 80 each day. Using the midpoint formula, the own price elasticity for Sam's Sandwiches would be __________. -0.33 0.50 1.33 -0.67 SAVE

Answer 1

The own price elasticity for Sam's Sandwiches would be -0.33

Price elasticity of demand measures how quantity demanded changes when there is a change in price.

Price elasticity of demand = midpoint change in quantity demanded / midpoint change in price  

Midpoint change in quantity demanded = change in quantity demanded / average of both demands

• Change in quantity demanded = 80 - 70 = 10  
• Average of both demands = (80 + 70) / 2 = 75
• Midpoint change in quantity demanded = 10/75 = 0.133

Midpoint change in price = change in price / average of both price

• change in price = $4 - $6 = $-2
• average of both prices = (4 + $6) / 2 = $5
• midpoint change in price = $-2 / $5 = -0.4

Price elasticity of demand =0.133 / -0.4 = -0.33

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