Asked by Kevin Wiley Jr. on May 12, 2024
Verified
Refer to Figure 5.7. Using the midpoint formula, the price elasticity of demand for pumpkins from the equilibrium point before the imposition of the tax to the equilibrium point after the imposition of the tax is
A) -0.02.
B) -0.47.
C) -2.11
D) -4.43
Midpoint Formula
A mathematical method used to find the exact middle point between two defined points on a line segment, calculated as the average of the x-coordinates and the y-coordinates of the points.
Price Elasticity
A measure of how much the quantity demanded of a good responds to a change in the price of that good, indicative of the good's necessity or luxury status.
Excise Tax
A tax applied specifically on the sale of certain goods, services, or activities, which is often included in the price of the product.
- Execute calculations and provide interpretation for the price elasticity of demand based on the supplied data.
- Evaluate the graphical plots illustrating supply and demand curves, including transformations due to tax policies.
Verified Answer
KD
Karen DanielleMay 16, 2024
Final Answer :
C
Explanation :
The price elasticity of demand (PED) is calculated using the midpoint formula: PED = [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)], where Q1 and Q2 are the initial and final quantities, and P1 and P2 are the initial and final prices. Without the specific values from Figure 5.7, the correct answer relies on understanding how to apply this formula. Given the options, -2.11 suggests a relatively elastic demand, which is plausible for goods like pumpkins where consumers can be sensitive to price changes.
Learning Objectives
- Execute calculations and provide interpretation for the price elasticity of demand based on the supplied data.
- Evaluate the graphical plots illustrating supply and demand curves, including transformations due to tax policies.