If the price of burritos increases from $4 to $6 and customers decrease their consumption from 20 to 10 burritos,what is the price elasticity of demand (by the midpoint method) ?

A) 1.67
B) 0.67
C) 3
D) 2

Question

If the price of burritos increases from $4 to $6 and customers decrease their consumption from 20 to 10 burritos,what is the price elasticity of demand (by the midpoint method) ?A) 1.67B) 0.67C) 3D) 2

Manzuara Khatun · Accepted Answer

Final Answer : A, Explanation :  The price elasticity of demand using the midpoint method is calculated as the percentage change in quantity demanded divided by the percentage change in price. The formula is: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)], where Q1 and Q2 are the initial and final quantities, and P1 and P2 are the initial and final prices. Substituting the given values: [(10 - 20) / ((10 + 20) / 2)] / [($6 - $4) / (($6 + $4) / 2)] = (-10 / 15) / (2 / 5) = -2/3 / 2/5 = -2/3 * 5/2 = -10/6 = -1.67. The negative sign indicates the direction of the change (a decrease in quantity demanded for an increase in price), but elasticity is often reported in absolute terms, making it 1.67.

If the price of burritos increases from $4 to $6 and customers decrease their consumption from 20 to 10 burritos,what is the price elasticity of demand (by the midpoint method) ?

A) 1.67
B) 0.67
C) 3
D) 2

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