94 In a local market the monthly price of Internet access se

9-4. In a local market, the monthly price of Internet access service decreases from $20 per account to $10 per account, and the total quantity of monthly accounts across all Internet access providers increases from 100,000 to 200,000. What is the price elasticity of demand? Is demand elastic, unit- elastic, or inelastic? (See pages 434-435.)

Solution

Using Mid point method: Change in price = -10 Average price: 15 % Change in price: -10 / 15 *100 = -66.67% Change in demand: 100000 Average demand: 150,000 % change in demand: 100000/150000*100 = 66.67% Price elasticity of Demand: % Change in demand/ % Xchnage in price 66.67% / -66.67% = -1 Hence, Price elasticity of demand is unit elastic