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Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between $10 and $8, by the midpoint method, is approximately:_______. A. 1.17. B. 1.50. C. 0.85. D. 1.00.

Answer :

Answer:

Option (A) is correct.

Explanation:

Given that,

Initial price = $10

Initial quantity demanded = 100 units

New price = $8

New quantity demanded = 130 units

By midpoint method,

Average price = (Initial price + New price) ÷ 2

                        = ($10 + $8) ÷ 2

                        = $9

Average quantity demanded:

= (Initial quantity demanded + New quantity demanded) ÷ 2

= ($100 + $30) ÷ 2

= 115 units

Therefore,

Price elasticity of demand:

= (Change in quantity demanded ÷ Average quantity demanded) ÷ (Change in price ÷ Average price)

= (30 ÷ 115) ÷ (2 ÷ 9)

= 0.26 ÷ 0.22

= 1.17 or 1.18

Therefore, the price elasticity of demand between $10 and $8, by the midpoint method, is approximately 1.17.

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