Q: Which formula is used to calculate the price elasticity of demand between two points on a demand curve?

$$\text{Price Elasticity of Demand} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}$$

Q: A company raises the price of its product from $$20 to 25$$, and as a result, the quantity demanded falls from 200 units to 150 units. Calculate the percentage change in price using the midpoint method.

$$\frac{25 - 20}{(25 + 20)/2} \times 100 = 22.22\%$$

Question 1

Which formula is used to calculate the price elasticity of demand between two points on a demand curve?

Accepted Answer

$$	ext{Price Elasticity of Demand} = \frac{\% 	ext{ change in quantity demanded}}{\% 	ext{ change in price}}$$

Question 2

If the price of a good increases from $$10 to 12 $$and the quantity demanded decreases from 100 units to 80 units, what is the price elasticity of demand using the midpoint method?

Accepted Answer

$$1.11$$

Question 3

Suppose the price elasticity of demand for a product is calculated as $$0.8. $$What does this imply about the demand for the product?

Accepted Answer

Demand is inelastic; consumers are not very responsive to price changes.

Question 4

A company raises the price of its product from $$20 to 25$$, and as a result, the quantity demanded falls from 200 units to 150 units. Calculate the percentage change in price using the midpoint method.

Accepted Answer

$$\frac{25 - 20}{(25 + 20)/2} 	imes 100 = 22.22\%$$

Question 5

Which of the following best describes the midpoint method for calculating elasticity?

Accepted Answer

It uses the average of the starting and ending values for both price and quantity to calculate percentage changes.

Question 6

If the absolute value of the price elasticity of demand is greater than 1, what does this indicate?

Accepted Answer

Demand is elastic; consumers are relatively responsive to price changes.

Question 7

A 10% increase in the price of a product leads to a 15% decrease in quantity demanded. What is the price elasticity of demand, and how would you classify the demand?

Accepted Answer

$$\frac{15\%}{10\%} = 1.5$$, which means demand is elastic.

Question 8

Why do economists use the absolute value of the price elasticity of demand when comparing elasticities?

Accepted Answer

Because the sign only indicates the direction of the relationship, but the magnitude shows responsiveness.

Question 9

If the price elasticity of demand for a good is exactly 1, what does this mean for total revenue when price changes?

Accepted Answer

Total revenue remains unchanged when price changes.

Question 10

A store owner observes that lowering the price of a product increases total revenue. What can be inferred about the price elasticity of demand for this product?

Accepted Answer

Demand is elastic; the percentage increase in quantity demanded is greater than the percentage decrease in price.

Question 11

Which of the following scenarios would most likely result in an inelastic demand for a product?

Accepted Answer

A life-saving medication with no close substitutes.

Question 12

If the price of a good falls from $$15 to 10 $$and the quantity demanded rises from 50 to 70 units, what is the price elasticity of demand using the midpoint method?

Accepted Answer

$$\frac{(70-50)/((70+50)/2)}{(10-15)/((10+15)/2)} = \frac{20/60}{-5/12.5} = \frac{0.333}{-0.4} = -0.83$$

Question 13

Which of the following best explains why the price elasticity of demand is usually negative?

Accepted Answer

Because price and quantity demanded move in opposite directions according to the law of demand.

Question 14

A 5% decrease in the price of a product leads to a 2% increase in quantity demanded. What is the price elasticity of demand, and how would you classify the demand?

Accepted Answer

$$\frac{2\%}{5\%} = 0.4$$, which means demand is inelastic.

Price Elasticity of Demand: Calculation and Interpretation

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