Asked by Katie Moules on May 16, 2024
Verified
(Figure: The Demand for e-Books) Use Figure: The Demand for e-Books.What is the price elasticity of demand (by the midpoint method) when the price decreases from $6 to $4?
A) 0.55
B) 0.5
C) 1
D) 0.67
Price Elasticity
The sensitivity measure of demand for a good relative to its price changes.
Demand Curve
It illustrates the relationship between the price of a good or service and the quantity demanded for a given period, assuming all other factors are constant (ceteris paribus).
Midpoint Method
A technique used in economics to calculate the elasticity of a variable, which averages the starting and ending values to minimize the bias in the elasticities calculated at different points.
- Familiarize oneself with the fundamental concept of price elasticity in demand and the technique for calculating it with the midpoint method.
Verified Answer
SM
Sophia MarieMay 19, 2024
Final Answer :
C
Explanation :
The price elasticity of demand using the midpoint method is calculated as the percentage change in quantity demanded divided by the percentage change in price. When the price decreases from $6 to $4, the quantity demanded increases from 4 to 6. The formula for the midpoint method is [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)]. Plugging in the values: [(6 - 4) / ((6 + 4)/2)] / [(4 - 6) / ((4 + 6)/2)] = (2/5) / (-2/5) = -1. The absolute value is taken for elasticity, so it is 1.
Learning Objectives
- Familiarize oneself with the fundamental concept of price elasticity in demand and the technique for calculating it with the midpoint method.