1. **State the problem:** Calculate the price elasticity of demand (E_P) using the midpoint formula given quantities and prices. 2. **Formula:** $$E_P = \frac{\frac{Q_2 - Q_1}{\frac{Q_1 + Q_2}{2}}}{\frac{P_2 - P_1}{\frac{P_1 + P_2}{2}}}$$ This formula calculates elasticity as the ratio of the percentage change in quantity demanded to the percentage change in price, using the average of the initial and final values to avoid bias. 3. **Given values:** - $Q_1 = 350$ - $Q_2 = 700$ - $P_1 = 550$ - $P_2 = 400$ 4. **Calculate numerator (percentage change in quantity):** $$\frac{Q_2 - Q_1}{\frac{Q_1 + Q_2}{2}} = \frac{700 - 350}{\frac{350 + 700}{2}} = \frac{350}{525} = 0.667$$ 5. **Calculate denominator (percentage change in price):** $$\frac{P_2 - P_1}{\frac{P_1 + P_2}{2}} = \frac{400 - 550}{\frac{550 + 400}{2}} = \frac{-150}{475} = -0.316$$ 6. **Calculate elasticity:** $$E_P = \frac{0.667}{-0.316} = -2.11$$ 7. **Interpretation:** The price elasticity of demand is $-2.11$, which means demand is elastic; a 1% decrease in price leads to approximately a 2.11% increase in quantity demanded.