Question

The quantity of red wine demanded increases from 25 to a 100 bottles in response to a price reduction from $20 to $15. what is the price elasticity of demand for wine? use the mid-point average formula.

Answer 1

The midpoint average formula for calculating the elasticity of demand, in this number for wine is as shown as below.

                   (Xnew – Xold) / (Xaverage)

Where x is for the price. The values of our Xnew and Xold are $15 and $20, respectively. The value of Xaverage is calculated through the equation,

                  Xaverage = ($15 + $20)/ 2 = $17.5

Substituting the known values to the equation,

          = ($15 - $20) / 17.5 = -0.286

ANSWER: -0.286