Question

The next questions are based on the following demand schedule for wheat:

Price of wheat		Quantity of wheat demanded (millions of bushels)
$1.00		8.0
$2.00		7.0
$3.00		6.0

A.         What is the mid-point price elasticity of demand for wheat when the price is between $1.00 and $2.00?

1. .33
2. .45
3. .20
4. 2.22
5. 3.00

B.         In this range the demand for wheat is:

1. perfectly elastic.
2. unitary elastic.
3. inelastic.
4. arc elastic.
5. Invariant

Answer 1

A.

Option C 0.20 is the correct answer

midpoint elasticity = { (Quantity 2 - Quantity 1 ) / [ (Quantity 1 + Quantity2) /2 ] } / { (Price 2 - Price 1 ) / [ (Price 1 + Price 2) /2 ] }

Quantity 1 = 8

Quantity 2 = 7

Price 1 = 1

Price 2 = 2

midpoint elasticity = { (7 - 8) / [ (8+ 7) /2 ] } / { (2- 1) / [ (1+ 2) /2 ] }

=> = -0.20

Absolute easiticy = 0.20

B.

Option C Inelastic is the correct answer

Midpoint elasticity as computed in A is 0.20 which is lower than 1.

Hence the correct answer is Inelastic.

This automatically renders other options incorrect.