Question

" Ashley Furniture sells 13,000 couches per month at a price of $800 per couch. When the price falls to $600, the quantity sold rises to 18,500. Use the midpoint formula to calculate the absolute value for price elasticity of demand for couches at Ashley Furniture."

Answer 1

The price elasticity of demand measures how sensitive the quantity demanded of a product is to a change in price. The midpoint formula is a method used to calculate the price elasticity of demand. To calculate the absolute value of the price elasticity of demand using the midpoint formula, we need to follow these steps: 1. Calculate the percentage change in quantity demanded: - Initial quantity demanded = 13,000 - New quantity demanded = 18,500 - Percentage change in quantity demanded = [(New quantity demanded - Initial quantity demanded) / ((New quantity demanded + Initial quantity demanded) / 2)] * 100 2. Calculate the percentage change in price: - Initial price = $800 - New price = $600 - Percentage change in price = [(New price - Initial price) / ((New price + Initial price) / 2)] * 100 3. Calculate the absolute value of the price elasticity of demand: - Absolute value of price elasticity of demand = Percentage change in quantity demanded / Percentage change in price Let's plug in the values and calculate: Percentage change in quantity demanded = [(18,500 - 13,000) / ((18,500 + 13,000) / 2)] * 100 = 37.83% Percentage change in price = [(600 - 800) / ((600 + 800) / 2)] * 100 = -33.33% Absolute value of price elasticity of demand = 37.83% / 33.33% = 1.135 (rounded to three decimal places) Therefore, the absolute value of the price elasticity of demand for couches at Ashley Furniture is approximately 1.135.