Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to which of the following values?

• A. (P_A + P_B) / (Q_A + Q_B)
• B. (P_B - P_A) / (Q_B - Q_A)
• C. (Q_B - Q_A) / [(Q_B + Q_A)/2] divided by (P_B - P_A) / [(P_B + P_A)/2]
• D. (Q_B - Q_A) / (P_B - P_A)

Answer: (C)

Verified step by step guidance

1. Understand that the price elasticity of demand measures the responsiveness of quantity demanded to a change in price between two points on the demand curve.
2. Recall the midpoint (arc elasticity) formula for price elasticity of demand, which is given by: \[\text{Elasticity} = \frac{\frac{Q_B - Q_A}{(Q_B + Q_A)/2}}{\frac{P_B - P_A}{(P_B + P_A)/2}}\]
3. Identify the variables: \(P_A\) and \(P_B\) are the prices at points A and B, respectively, and \(Q_A\) and \(Q_B\) are the quantities demanded at points A and B, respectively.
4. Calculate the percentage change in quantity demanded using the midpoint formula: \[\frac{Q_B - Q_A}{(Q_B + Q_A)/2}\]
5. Calculate the percentage change in price using the midpoint formula: \[\frac{P_B - P_A}{(P_B + P_A)/2}\] Then, divide the percentage change in quantity demanded by the percentage change in price to find the price elasticity of demand between points A and B.