Multiple choice general knowledge science & technology

When the price of bubble gum is \$0.50, the quantity demanded is 400 packs per day. When the price falls to \$0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is

  1. inelastic.

  2. elastic.

  3. unit elastic.

  4. perfectly inelastic.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Using the midpoint method: Price change = (0.50-0.40)/0.45 = 22.2%. Quantity change = (600-400)/500 = 40%. Since quantity percentage change (40%) exceeds price percentage change (22.2%), demand is elastic. Consumers are quite responsive to price changes for bubble gum.

AI explanation

To determine the elasticity of demand using the midpoint method, we can use the following formula:

Elasticity of demand = (Percentage change in quantity demanded) / (Percentage change in price)

Let's calculate the percentage change in quantity demanded first:

Change in quantity demanded = 600 - 400 = 200 Average quantity demanded = (400 + 600) / 2 = 500 Percentage change in quantity demanded = (Change in quantity demanded / Average quantity demanded) * 100 = (200 / 500) * 100 = 40%

Now, let's calculate the percentage change in price:

Change in price = 0.40 - 0.50 = -0.10 Average price = (0.50 + 0.40) / 2 = 0.45 Percentage change in price = (Change in price / Average price) * 100 = (-0.10 / 0.45) * 100 = -22.22%

Now, let's calculate the elasticity of demand:

Elasticity of demand = (Percentage change in quantity demanded) / (Percentage change in price) = 40% / -22.22% ≈ -1.80

Since the elasticity of demand is greater than 1 (in absolute value), we can conclude that the demand for bubble gum is elastic.

Therefore, the correct answer is B) elastic.

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