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For smart phone demand, price rises from $70 to $80 and quantity demanded falls from 2,800 to 2,600. Using the midpoint method, what is the price elasticity of demand over this interval?
AAbout 2.83, elastic
BAbout 1.00, unit elastic
CAbout 0.56, inelastic
DAbout 1.47, elastic
Answer & Solution
Correct answer: C. About 0.56, inelastic
1. Percentage change in quantity: (2,600 minus 2,800) divided by the average of 2,600 and 2,800, which is 2,700, times 100, is about negative 7.41 percent.
2. Percentage change in price: (80 minus 70) divided by the average of 80 and 70, which is 75, times 100, is about 13.33 percent.
3. Price elasticity of demand equals 7.41 divided by 13.33, read as a positive number, which is about 0.56.
4. Since 0.56 is below one, demand is inelastic over this interval.
5. Option D's 1.47 belongs to a higher-price interval on the same demand curve, where elasticity had risen.
6. Options A and B belong to supply data from the alarm clock table, not this demand interval.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 5 "Elasticity", section 5.1 | Price Elasticity of Demand and Price Elasticity of Supply_
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