Refer to the table below, which shows the price and quantity demanded of a product. Using the midpoint method, what is the price elasticity of demand when the price increases from 10 to 12 and the quantity demanded decreases from 100 to 80?

• A. 1.11
• B. 1.0
• C. 0.90
• D. 0.80

Answer: (A)

Verified step by step guidance

1. Identify the initial and new prices and quantities. Here, the initial price \(P_1\) is 10, the new price \(P_2\) is 12, the initial quantity demanded \(Q_1\) is 100, and the new quantity demanded \(Q_2\) is 80.
2. Calculate the percentage change in quantity demanded using the midpoint formula: \(\%\Delta Q = \frac{Q_2 - Q_1}{\frac{Q_1 + Q_2}{2}}\).
3. Calculate the percentage change in price using the midpoint formula: \(\%\Delta P = \frac{P_2 - P_1}{\frac{P_1 + P_2}{2}}\).
4. Compute the price elasticity of demand by dividing the percentage change in quantity demanded by the percentage change in price: \(E_d = \frac{\%\Delta Q}{\%\Delta P}\).
5. Interpret the result: if \(|E_d| > 1\), demand is elastic; if \(|E_d| < 1\), demand is inelastic; if \(|E_d| = 1\), demand is unit elastic.