Question

When the price of a sweater was $40, the store sold 150 sweaters per month. When it raised the price to $50 each, it sold 120 sweaters per month. Using the midpoint method, the price elasticity of demand for sweaters is

Answer 1

Answer:

the price elasticity of demand is -1

Explanation:

The computation of the price elasticity of demand is shown below:

Price elasticity of demand

= (change in quantity demanded ÷ average of quantity demanded) ÷ (percentage change in price ÷ average of quantity demanded)

where,

Change in quantity demanded is

= Q2 - Q1

= 120 - 150

= -30

And, average of quantity demanded is

= (150 + 120) ÷ 2

= 135

Change in price is

= P2 - P1

= $50 - $40

= $10

And, average of price is

= ($50 + $40) ÷ 2

= 45

After solving this,

Hence, the price elasticity of demand is -1