Question

Studies indicate that the price elasticity of demand for beer is about 0.9. A government policy aimed at reducing beer consumption changed the price of a case of beer from $10 to $20. According to the midpoint method, the government policy should have reduced beer consumption by

Answer 1

Answer:

60%

Explanation:

price elasticity of demand= (Q2-Q1)/ [(Q2+Q1)/2] divided by (P2-P1)/ [(P2+P1)/2]

Where Q is change in quantity

P1 is Price 1 =10 , Price 2= 20

Price elasticity of demand =0.9

Therefore

0.9= (Q2-Q1)/ [(Q2+Q1)/2] divided by (P2-P1)/ [(P2+P1)/2]

0.9= (Q2-Q1)/ [(Q2+Q1)/2] divided by (20-10)/ [(20+10)/2]

0.9 = (Q2-Q1)/ [(Q2+Q1)/2] ÷ 10/15

0.9 = (Q2-Q1)/ [(Q2+Q1)/2] ÷ 0.6667

(Q2-Q1)/ [(Q2+Q1)/2] = 0.9 × 0.667

=0.6

Expressed as percentage = 0.6 × 100

=60%