Question

a. Using the data found in Question 1, calculate the elasticity of demand and elasticity of supply at each price change in the market for gold picture frames using the midpoint formula for both supply and demand. Because you are calculating the change between two levels, you will have 7 calculations for the 8 prices. (2 marks – 1 mark each for correct demand and correct supply elasticities)

Price	Quantity Demanded	Elasticity of Demand	Quantity Supplied	Elasticity of Supply
$50	1,750,000		620,000
$60	1,575,000		740,000
$95	1,330,000		865,000
$100	1,300,000		910,000
$120	1,295,000		1,295,000
$160	1,085,000		1,750,000
$185	900,000		1,925,000
$200	750,000		2,075,000

                                                                                            

b.   Based on your elasticity of demand calculation, if the price of gold picture frames rises from $100 to $120 will total revenue go up or down? Explain. You need to answer the first part of this question by explaining how you interpreted the elasticity of demand at this point. How much will revenue change (in dollar terms)? (2 marks – 1 mark for calculation, one mark for explanation using elasticity)

Answer 1