If the price of a magazine increases from $5 to $7 and the quantity demanded of the magazines decreases from 10 million per month to 8 million per month, using the midpoint method, what is the price elasticity of demand? Show your work
Is the demand elastic, inelastic, or unit elastic?
The price elasticity of demand = (percentage change in the quantity demanded) ÷ (percentage change in the price). Use the midpoint method to calculate the percentages. So the percentage change in the quantity demanded is (10 million - 8 million) ÷ (9 million) = 22 percent and the percentage change in the price is ($7 - $5 ) ÷ ($6 ) = 33 percent. Therefore the elasticity of demand equals
(22 percent) ÷ (33 percent) = 0.67. Demand is inelastic because the price elasticity of demand is less than 1.
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