Question

1. The following data below represent the demand schedule for good X.

Price ($)	Quantity Demanded
22	32
18	48
14	64
10	80
8	96

Use the midpoint formula to determine the price elasticity of demand at the following price points:

$22 and $18

Answer 1

Ans. Using the midpoint method

Price Quantity demanded

$22 32

$18 48

% change in price = change in price /average price x 100

% change in price = $18 - $22/( $22+$18)/2 x 100

= - 20 %

And

% change in quantity demanded = change in quantity/average quantity x 100

= 48 - 32/(32+48)/2 x 100

= 40%

Then

The price elasticity of demand = % change in quantity demanded/% change in price

= 40%/ (- 20%)

= - 2

Hence, the price elasticity of demand is 2.

Note:

A negative sign denoted the negative relationship between price and quantity demanded.