The price of chicken breast rises from $3.00 to $3.60 per pound. In response to the price change, the demand for chicken breast falls by 25%. Based on the midpoint method, the absolute value of the price elasticity of demand for chicken breast is _____, and the price elasticity of demand is _____.Question 4Answera.1.38; inelasticb.0.73; elasticc.1.38; elasticd.0.73; inelastic
Question
The price of chicken breast rises from 3.60 per pound. In response to the price change, the demand for chicken breast falls by 25%. Based on the midpoint method, the absolute value of the price elasticity of demand for chicken breast is _____, and the price elasticity of demand is _____.Question 4Answera.1.38; inelasticb.0.73; elasticc.1.38; elasticd.0.73; inelastic
Solution
The price elasticity of demand can be calculated using the midpoint method with the following formula:
Elasticity = (Q2 - Q1) / [(Q2 + Q1) / 2] ÷ (P2 - P1) / [(P2 + P1) / 2]
Where:
- Q1 and Q2 are the initial and final quantities demanded
- P1 and P2 are the initial and final prices
Given the problem, we know that:
- The initial price (P1) is $3.00
- The final price (P2) is $3.60
- The quantity demanded falls by 25%, so if we assume the initial quantity demanded (Q1) is 100 units, the final quantity demanded (Q2) would be 75 units.
Substituting these values into the formula, we get:
Elasticity = (75 - 100) / [(75 + 100) / 2] ÷ (3.60 - 3.00) / [(3.60 + 3.00) / 2] Elasticity = -25 / 87.5 ÷ 0.60 / 3.30 Elasticity = -0.286 ÷ 0.182 Elasticity = -1.57
The absolute value of the price elasticity of demand is 1.57.
The price elasticity of demand is elastic if the absolute value is greater than 1, and inelastic if it's less than 1. In this case, since 1.57 is greater than 1, the price elasticity of demand is elastic.
So, the answer is not in the options given. The correct answer should be the absolute value of the price elasticity of demand is 1.57, and the price elasticity of demand is elastic.
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