Question

is D right?

5. Refer to the table below to answer the following questions: Quantity Demanded 130 Price $1.60 S1,80 $2.00 $2.20 $2.40 $2.60 120 110 100 90 80 4100 4100) + CZ =0.70 a) Calculate the own-price elasticity of demand between $2.00 and $2.20. t ot baie b) Calculate the own-price elasticity of demand between $1.60 and $1.80. 130-120 +(1.6+18) = 10 + 12 868) 0 1. 26 c) Calculate the own-price elasticity of demand between $2.20 and $2.40. (100 90 x 2,2 +2,4 0020 d) Graph the demand curve, pointing out where the elasticity is elastic, inelastic, or unit elastic. Cocondo y = 10+2 -0.21 demand curve, pointing on -2. 20- e) Suppose a producer is currently selling this good at $2.40. Would it make sense for him to to $2.207 Why or why not? Explain using the concept of own-price elasticity of demand.

Answer 1

Part D is answered correctly, as follows:

Demand Schedule Price 0 20 40 100 120 140 60 80 Quantity

For a price range of 2.2 to 2.4 and at higher price, the quantity demanded is elastic in nature. From price range of 2 to 2.2, the quantity demanded is unitary elastic. Below the price level of 2, the demand is relatively inelastic in nature.

For example,

Price elasticity of demand between 2 and 2.2 =((100-110)/(100+110)/2)/((2.2 - 2)/(2.2+2)/2)

Price elasticity between 2 and 2.2 = -1

Price elasticity of demand between 1.8 and 2 =((110-120)/(110+120)/2)/((2-1.8)/(2+1.8)/2)

Price elasticity of demand between 1.8 and 2 = -.83 ( inelastic demand)

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E.

At price of $2.4,

Total revenue = 2.4*90 = $216

At price of $2.2,

Total revenue = 2.2*100 = $220

Since the total revenue increases with decrease in price, then price should be decreased. It is justified by the own price elasticity that is elastic in nature (-1.21).

Own price elasticity of demand = ((90-100)/(90+100)/2) / ((2.4 - 2.2)/(2.4+2.2)/2)

Own price elasticity of demand = -1.21