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When the price of pistachio nuts is $7.50 per lb. the quantity demanded is 48 lbs. When the price of peaches is $9.00 per lb. the quantity demanded is 40 lbs. When the midpoint formula is used to measure the price elasticity of demand we can say that the demand for pistachio nuts is A. relatively, but not perfectly, elastic. B. unit-elastic. C. completely inelastic. D. relatively, but not perfectly, inelastic.

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TonieCee

Answer: Option B. Unit-elastic

Explanation: Using the midpoint formula, we have:

% change in Price = P2 - P1 ÷ (P2 + P1)/2

We have:

P1 = $7.50

P2 = $9.00

Therefore:

% change in Price = 9.00 - 7.50 ÷ (9.00 + 7.50)/2

= 1.5 ÷ 8.25

= 0.18

To calculate % change in quantity, we have:

% change in quantity = Q2 - Q1 ÷ (Q2 + Q1)/2

Q1 = 48 lbs

Q2 = 40 lbs

We have:

% change in quantity = 40 - 48 ÷ (40 + 48)/2

= -8 ÷ 44

= -0.18

To calculate price elasticity of demand, we have:

% change in quantity/% change in Price

= -0.18/0.18

= -1

Therefore the price elasticity of demand is -1 and the implication of this is that the demand for pistachio nuts is Unit-elastic. Option B.

This means that as price increases, demand drops.

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