Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is (based on the midpoint formula): a )4.0. b) 2.1. c)3.9. d) 1.4.

The correct answer is d) 1.4.

The price elasticity which uses the midpoint formula is calculated as = percentage change in quantity demanded/percentage change price. That is 7%/5%=1.4 The percentage change in quantity demanded is calculated as = (118-110)/(110+118)/2 =7%. Finally, the percentage change in price is calculated as =(2-1.9)/(2+1.9)/2 =5%.