Asked by Olivia Anne Samonte on May 28, 2024
Verified
Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 1.45. Which of the following events is consistent with a 20 percent decrease in the quantity of the good demanded?
A) An increase of 29.0 percent in the price of the good
B) An increase of 13.79 percent in the price of the good
C) An increase in the price of the good from $29.00 to $20
D) An increase in the price of the good from $20 to $49.00
Price Elasticity
An indicator for the degree to which the supply or demand level of a good adjusts following a change in its price.
Midpoint Method
A technique used in economics to measure the elasticity of demand or supply, which calculates the percentage change between two points by dividing the difference by the average of those points.
- Employ the midpoint formula to ascertain diverse forms of elasticity, encompassing the price elasticity of demand, the income elasticity of demand, and the cross price elasticity.
Verified Answer
ZK
Zybrea KnightJun 03, 2024
Final Answer :
B
Explanation :
The price elasticity of demand formula using the midpoint method is: Elasticity = (ΔQ / [(Q1 + Q2)/2]) / (ΔP / [(P1 + P2)/2]), where ΔQ is the change in quantity demanded, ΔP is the change in price, Q1 and Q2 are the initial and final quantities, and P1 and P2 are the initial and final prices. Given an elasticity of 1.45 and a 20% decrease in quantity demanded, the price must increase by approximately 13.79% to maintain this elasticity, as elasticity is the percentage change in quantity demanded divided by the percentage change in price.
Learning Objectives
- Employ the midpoint formula to ascertain diverse forms of elasticity, encompassing the price elasticity of demand, the income elasticity of demand, and the cross price elasticity.