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Price elasticity of demand practice
Price elasticity of demand compares the percentage change in quantity demanded with the percentage change in price. State the percentage-change method before calculating.
By ExamCat · Original study lesson · Published September 24, 2026
Understand the method
The midpoint method divides each change by the average of its endpoints. Economists often report demand elasticity as an absolute value for classification: above one is elastic, below one is inelastic, and one is unit elastic.
Worked example, step by step
Price rises from $10 to $12 while quantity demanded falls from 100 to 80 units. Calculate midpoint elasticity.
- Quantity percentage change is (80 − 100)/90 ≈ −22.22%.
- Price percentage change is (12 − 10)/11 ≈ 18.18%.
- Elasticity is −22.22/18.18 ≈ −1.22, with absolute value 1.22.
- Demand is elastic over this interval by the midpoint measure. Revenue changes from $1,000 to $960.
A mistake to watch for
Using the starting value for one percentage and the midpoint for the other mixes methods. Also, a slope measured in units per dollar is not itself a percentage elasticity.
Try it yourself: three questions
Write an answer before opening the explanation. For calculations, keep your units and intermediate steps; for concepts, state the reason for your choice.
1. If absolute elasticity is 0.4, is demand elastic or inelastic?
Show answer and explanation
Inelastic: quantity changes proportionally less than price over the specified comparison.
2. If quantity barely changes after a price increase, what does that suggest?
Show answer and explanation
A small absolute elasticity for that interval, assuming the change is attributable to price with other relevant conditions held fixed.
3. Can you infer a permanent elasticity from two observations without context?
Show answer and explanation
No. Other demand determinants may have changed, and elasticity can vary along a curve or across time horizons.
Build your next practice session
Mark the first step where your reasoning differed from the explanation. Turn that step into a question, answer it without looking, then change one condition in the example and explain what would change. A correct guess is a reason to revisit the method.
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