Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50, the quantity demanded falls from 800 to 600 reams per day. Using the midpoint formula, what is the price elasticity of demand (in absolute value) over this range? Group of answer choices

The answer is -2.42

Explanation:

P1 = $4 Q1 = 800

P2 = $4.50 Q2 = 600

Using the midpoint formula, we have:

For price:

P2 - P1/(P2 + P1)/2

= 4.5 - 4/(4.5 + 4)/2

= 0.5/4.25

= 0.12

For quantity:

Q2 - Q1/(Q2 + Q1)/2

= 600 - 800/(600 + 800)/2

= -200/700

= -0.29

Price elasticity of demand = change in quantity/change in price

= -0.29/0.12

= -2.42.

2.43

Explanation:

Given that

P1 = 4

P2 = 4.50

Q1 = 800

Q2 = 600

Recall that

Using midpoint formula

% change in quantity = [Q2 - Q1/(Q2 + Q1) ÷2] × 100

= 600 - 800/600 +800 ÷ 2 × 100

= -200/700 × 100

= 28.57%

% change in price = [P2 - P1/(P2 + P1) ÷ 2] × 100

= 4.50 - 4/4.50 + 4 ÷ 2 × 100

= .50 / 4.25 × 100

= 11.76%

Price elasticity of demand = %change in quantity ÷ % change in price

= 28. 57 ÷ 11.76

= 2.429

= 2.43

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