Question

USPS and the Price Elasticity of Demand The following table shows how the average stamp prices at USPS changed for 2016 and 2017. It also shows how the quantity of mail handled changed during that time period. 2016 2017 Average Stamp Price (price per ounce of mail) 47 cents 49 cents (Price or P) Pieces of Mail Handled (in millions) 154,342 149590 (Quantity or (1) Revenue from Mail-Handling (in millions) $73299.1 Total Revenue - PxQ Answer the following questions. Explain your answers, show all your work, and make sure to clearly state any assumptions you make. 1. Without looking at any of the data, do you expect the demand for postage stamps to be elastic, inelastie or unit elastic? Explain why (focus on the main determinants of demand elasticity and not on the data provided). 2. Based on your data collected above, calculate the price elasticity of Demand for USPS stamps between 2016 and 2017, using the midpoint method (round your answer to 2 decimal places). Show your work 3. Based on your calculations and answer to question 3, is the demand for stamps elastic, inelastic, or unitary elastic? 4. Interpret the meaning of your answers by completing the following sentence: For every 1% change in the price of stamps, quantity demanded will ...... 5. Based on your calculations and answers to questions 2 and 3above, if USPS were to increase the price of stamps in the future, would you expect the revenue from stamps to go up, down, or stay the same? Why? What assumptions, if any, are you making here?

Answer 1