Answer:
This statement is true.
Explanation:
The price elasticity of demand measures the change in quantity demanded of a commodity because of a rise in the price of a commodity.
The midpoint method of calculating elasticity finds the elasticity of demand between two points on the same demand curve.
The midpoint price elasticity of demand is
= [tex]\frac{\% \Delta Q}{\% \Delta P}[/tex]
= [tex]\frac{\frac{Q2 - Q1}{\frac{Q2 + Q1}{2} } }{\frac{P2 - P1}{\frac{P2 + P1}{2} } }[/tex]
= [tex]\frac{\frac{600 - 500}{\frac{600 + 500}{2} } }{\frac{0.80 - 1}{\frac{0.80 + 1}{2} } }[/tex]
= [tex]\frac{\frac{100}{\frac{1,100}{2} } }{\frac{-0.20}{\frac{1.80}{2} } }[/tex]
= [tex]\frac{\frac{100}{550} }{\frac{-0.20}{0.90} }[/tex]
= [tex]\frac{- 0.1818}{0.2222}[/tex]
= -0.822
So we see that the midpoint elasticity of demand is less than 1, which means demand is inelastic.
