Question

P (5) GoodA Q (units) Use the above graph to answer the following questions. 1) What is the price elasticity of demand over the price range of $8 and $12? (use the midpoint method and show your work. (5 points) 2) Is the consumer elastic, inelastic or unit elastic? (3 points) 3) Will a price increase from 8 to 12 result in an increase in revenue or a decrease in revenue (for full credit this answer must match expectations from #2 above)? (3 point) 4) Given: Cross Price Elasticity of Demand (for goods A and B) is +2, and the Price of good B increases by 5% and the price of the above good remains constant at $8. What will be the new quantity demanded by consumers? (4 points)

Answer 1

P = 8 P2 = 12 , Q = 100 , Q2 = 80 Elasticity = -(80-100) x 12+8) (100+80) 712-8) - 400 =0.55 720 2) value of Consumer elasticity is is inelastic because less than 1. 3) Revenue will increase is inclastic increase because when demand price increases revenue. in 4 ) I Cross price elasticity – 1. change in quantity demanded 1. Change in price af B 2 = V. Change in quantity demanded 5 quantity demanded increases by lot