Suppose that in a month the price of movie rentals decreases from $3.25 to $3. at the same time, the quantity of movie rentals demanded increases from 100 to 120. the price elasticity of demand for movie rentals (calculated using the midpoint formula) is:
a. elastic.
b. zero.
c. inelastic.
d. unitary elastic.

The correct answer is option a.

Explanation:

The initial price of movie rentals is $3.25.

The initial quantity is 100.

The price falls to $3.

This causes demand to rise to 120.

The price elasticity of demand a ratio of change in quantity demanded to change in price level.

The elasticity is calculated at -2.25, through the process given in images.

The price elasticity of demand here is greater than 1 which means it is elastic.

So, option a is the correct answer.

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