Question

suppose when the price of a can of tuna is $1.30, the quantity demanded is 9, and when the price is $1.50, the quantity demanded is 7. using the mid-point method, the price elasticity of demand is:

Answer 1

To calculate the price elasticity of demand using the midpoint method, we need to use the following formula:

Price Elasticity of Demand = ((ΔQ / ((Q1 + Q2) / 2)) / (ΔP / ((P1 + P2) / 2))

Given information:

Price 1 = $1.30

Quantity 1 = 9

Price 2 = $1.50

Quantity 2 = 7

Step 1: Calculate the change in quantity demanded:

ΔQ = Quantity 2 - Quantity 1

ΔQ = 7 - 9

ΔQ = -2

Step 2: Calculate the average quantity demanded:

Qavg = (Quantity 1 + Quantity 2) / 2

Qavg = (9 + 7) / 2

Qavg = 8

Step 3: Calculate the change in price:

ΔP = Price 2 - Price 1

ΔP = $1.50 - $1.30

ΔP = $0.20

Step 4: Calculate the average price:

Pavg = (Price 1 + Price 2) / 2

Pavg = ($1.30 + $1.50) / 2

Pavg = $1.40

Step 5: Substitute the values into the price elasticity of demand formula:

Price Elasticity of Demand = ((ΔQ / Qavg) / (ΔP / Pavg))

Price Elasticity of Demand = ((-2 / 8) / ($0.20 / $1.40))

Price Elasticity of Demand = -0.875

Therefore, the price elasticity of demand, using the midpoint method, is -0.875.