If the price of suntan lotion increases from $6 to $8 per bottle and quantity demanded decreases from 900,000 bottles to 845,000 bottles, using the midpoint method, what is the price elasticity of demand for suntan lotion?
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The price elasticity of demand = (percentage change in the quantity demanded) ÷ (percentage change in the price). Use the midpoint method to calculate the percentages. Thus the percentage change in the quantity demanded = (900,000 - 845,000 ) ÷ (872,500 ) = 6.3 percent and the percentage change in the price is ($8 - $6 ) ÷ ($7 ) = 28.6 percent. Therefore the elasticity of demand equals (6.3 percent) ÷ (28.6 percent) = 0.22.
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What will be an ideal response?
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