Question

At​ Roy's Music​ Shack, when the price of CDs is

​$13

​,

800

are demanded.

When the price of CDs is

​$14

​,

600

are demanded.

Using the averages of the two prices and​ quantities, the price elasticity of demand for CDs is

nothing

.

​(Round

your answer to one decimal​ place, and express your answer in absolute

value.​)

Answer 1

As per the information given in the question

Price of CD	Quantity Demanded
13	800
14	600

Calculating the price elasticity using the average price quantity method (midpoint method)

We have:

Initial Price (PI) = 13, New Price (PN) = 14,

Initial Quantity (QI) = 800, New Quantity (QN) = 600.

Elasticity = ((QN − QI) / (QN + QI) / 2) ÷ ((PN - PI) / (PN + PI) / 2)

Elasticity = ((600 − 800) / (600 + 800) / 2) ÷ ((14 - 13) / (14 + 13) / 2)

Elasticity = -0.0714 / 0.0185

Elasticity = -3.8 OR 3.8 in absolute value

In absolute value, price elasticity will be 3.8