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) Suppose these are the ticket prices and quantity demanded information for watching a movie in a cinema. :Price ($17.70) – Quantity demanded =280 Price ($17.20) – Quantity demanded =313 question: Calculate the price elasticity of demand using the Mid-Point formula when the price of movie tickets decreased from $17.70 to $17.20. Conclude if the value derived meant price elastic demand or price inelastic demand. [Note: Please use 3 decimal places in your working and answer]

Summary:

This question is asking to calculate the price elasticity of demand using the mid-point formula and to conclude whether the result is indicative of price elastic or inelastic demand.

Supporting Subsections:

The Mid-Point Formula

The mid-point formula for calculating price elasticity of demand is PED = (change in quantity demanded / average quantity demanded) / (change in price / average price).

Calculating Price Elasticity of Demand

The price of movie tickets decreased from $17.70 to $17.20. The change in quantity demanded is 313-280 = 33. The average quantity demanded is (313+280)/2 = 296.5. The change in price is 17.70-17.20 = 0.50. The average price is (17.70+17.20)/2 = 17.45. Therefore, the price elasticity of demand using the mid-point formula is PED = (33/296.5) / (0.50/17.45) = 0.30.

Interpreting the Price Elasticity of Demand

The value of 0.30 derived from the mid-point formula indicates that the demand for movie tickets is price inelastic. This is because a price elasticity of demand under 1 means that demand is inelastic and a price elasticity of demand over 1 means that demand is elastic.

Conclusion

The calculation of the price elasticity of demand using the mid-point formula indicates that the demand for movie tickets is price inelastic.

Related Questions:

What is the mid-point formula for calculating price elasticity of demand?
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