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Suppose that decreases in the price of milk lead to decrease s in the retail prices...

Suppose that decreases in the price of milk lead to decrease s in the retail prices for ice cream by 4 per cent from last year while ice cream consumption is up 7 per cent. Given this information, calculate the price elasticity of demand for ice cream. Will the revenue received by ice cream suppliers have increased or decreased following the price decrease ? Briefly explain.
The price elasticity of demand for ice cream is nothing.
(Enter your response as a real number rounded to two decimal places. Include a minus sign if necessary.)
The revenue received by ice cream suppliers will have
A.
increased because revenue is the product of price and quantity, and price has decreased by less than quantity has increased.
B.
decreased because revenue is the product of price and quantity, and price has decreased by more than quantity has increased.
C.
decreased because revenue is the product of price and quantity, and price has decreased by less than quantity has increased.
D.
increased because revenue is the product of price and quantity, and price has decreased by more than quantity has increased.

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Answer #1

Price elasticity of demand is measured as: Percentage change in demand/percentage change in price

= 7/4

= 1.75

As the value is greater than 1 so the price elasticity of demand is elastic.

A given percentage decrease in price will lead to more than proportionate increase in demand so that total revenue will increase.

option(A)

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