The price of headphones increases from $20 to $24. As a result, the quantity demanded falls from 33 to 27 per week. Calculate the price elasticity of this product using the midpoint method. Show the steps you use.
What will be an ideal response?
The average price is $22. The average quantity demanded is 30. So a $4 increase of headphone price causes a reduction in quantity demanded of headphones of 6. The percentage change in price is the change in price ($4) divided by the average price ($22). Thus, the percentage change of price is 18.18 percent. The percentage change in quantity is the change in quantity (6) divided by the average quantity (30). Thus, the percentage change of quantity is 20 percent. The price elasticity of demand is equal to the percentage change in quantity demanded (20) divided by the percentage change in price (18.18). Therefore, the price elasticity of demand is 1.1.
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