Question

Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is (based on the midpoint formula):
a) 4.0.
b) 2.1.
c) 3.9.
d) 1.4.

Answer 1

Answer:

d) 1.4.

Explanation:

Price Elasticity of demand is a measure which shows the responsiveness of demand due to change in price.

% change in demand = ( 118 - 110 ) / 110 = 7%

% change in price = ( $2.00 - $1.90 ) / $2.00 = 5%

As we know

Price Elasticity =  % Change in  Demand / % Change in price

Price Elasticity =  7% / 5%

Price Elasticity =  1.4

So, the correct answer is d) 1.4.