Question

Suppose initial price and quantity are 161 P and 281 Q and new price and quantity are 142 P and 422 Q .

 (i). Calculate price elasticity of demand. 

(ii). If price decreases further what will happen to total revenue? 

(iii). If we want to increase sales by 30 percent how much should price be decreased (in percentage)? 

(iv). If we decrease price by 10 percent how will it increase quantity demanded (in percentage)? 

(b). Suppose price of pizza is $10 and people buy 8 pizzas an hour. Then price of burger rises from $1.50 to $2.50 and as a result quantity of pizza demanded increases to 12 an hour. Calculate Cross Price Elasticity of Demand. 

(c). When consumer (per capita) income is $800/ week, the people of a city travel 800,000 miles by the intercity bus service. If consumer income increases to $1200/ week, demand for intercity bus service decreases to 200,000 miles. Calculate income elasticity of demand. Is intercity bus service a normal or inferior good? Why?

Answer 1