Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demandeda. a 7.5 increase in the price of the good
b. a 13.33 percent increase in the price of the good
c. an increase in the price of the good from $7.50 to $10
d. an increase in the price of the good from $10 to $17.50

b. a 13.33 percent increase in the price of the good

Explanation:

We can write the price elasticity of demand as:

We have to guess which event produces a 10% drop in the quantity demanded (dQ/Q=-0.10).

Knowing the concept of elasticity, this can be produced by a price increase.

The amount of this increase can be estimated knowing the value of the PED (price elasticity of the demand).

Then, what causes the 10% drop in the demanded quantity is a 13.33% price increase.

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