The price of a new portable CD player falls from $100 to $90 . The quantity of CD players demanded rises from 15,000 per year to 20,000 per year. Use the midpoint formula to calculate the price elasticity of demand for portable CD players
Is the demand elastic, inelastic, or unit elastic?
percentage change in quantity demanded = [20,000 –15,000]/17,500 = 5,000/17,500 = 28.6
percentage change in price = [$90 - $100]/$95 = -$10/$95 = -10.5
price elasticity of demand = [28.6]/[-10.5] = -2.7
Since the absolute value of the price elasticity of demand is greater than one, the demand is elastic.
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