The shortrun price elasticity of demand for tires is 090 The

The short-run price elasticity of demand for tires is 0.90. The mid-point formula was used for this calculation. If an increase in the price of petroleum (used in producing tires) causes the market prices of tires to rise from $40 to $50, by what percentage would you expect the quantity of tires demanded to change?

Solution

0.90 = -% change in quantity demanded / (50-40)/((50+40)/2)

0.90 =- % change in quantity demanded / 0.2222

% change in quantity demanded = -0.2222*0.90 = 0.20 = 20% decline in quantity demanded