Question

Question 12 Exhibit 5-6 Demand curve for concert tickets 40 Price per 30 ticket (dollars) 20 Demand curve 0 10 20 30 40 Quantity of tickets per concert (thousands) In Exhibit 5-6, if promoters lower their ticket price form $30 to $20, then: people will continue to buy the same number of tickets customers will spend less total money on concert tickets Othey will receive less money from their ticket sales both ticket sales and total revenue will rise

Answer 1

12. The correct option would be

• both ticket sales and total revenue will rise.

If the price is lowered from $30 to $20, the quantity demanded would increase from 10 units (here, 1unit = thousand) to 30 units. The total revnue would then change from
TR= PQ = $30* 10000 = $300000
to
TR= PQ = $20* 30000 = $600000
, meaning that the total revenue would increase by $300000.

The number of ticket people would buy increases as the price decreases, hence first option is incorrect. Yet the individual consumer would have to spend less money on ticket, the change total money spent by all consumers would depend on elasticity of demand. The firm would receive more moeny or less money from ticket sale depending on the elasticity of demand.

The demand curve is flatter, meaning that the demand is elastic, ie for a unit percent decrease in price the demand would increase by more than a unit percent. In out case, by arc elasticity method, the elasticity would be as
ΔQ/O2 + Qι)/2) ΔΡ/(P+ Ρ)/2) Ρ
or
(30-10)/(30) + 101/2) (200-30): (20) - 3001/2)
or
20/20 Ep. 10/25
or
Ep = -2.5
, meaning that for a unit percent increase/decrease in price the demand decrease/increase by 2.5%. Hence, the total recvenue would increase for an elastic demand if prices are lowered, as the decrease in price is more than offset by the increase in quantity demanded. Hence, the last option is correct which states the sales would increase along with revenue.