Question

a price change causes the quantity demanded of a good to decrease by 30percent , while the total revenue of that good increases by 15 percent . is the demand curveelastic or inelastic ? explain.

Answer 1

Hi, I think it is inelastic. The fact that a decrease in quantity demanded means that more than likely the price went up, because in a demand curve: QDincreases as P decreases and QD decreases as P increases. This assumed increase of price paired with the increase of total revenue leads me to believe thatthe demand curve is inelastic.

Inelastic Demand: TR increases as P goes up; TR decreases as P decreases
Elastic Demand: TR increases as P decreases; TR decreases as P increases

Since the % change in P is unknown I do not think that the elasticity can be determined by the midpoint method. However, it has been some time since I havetaken Micro so I may be mistaken. Also, an elasticity of one would mean that it is unit elastic. Hope this helps!

Answer 2

In this case, the good is elastic. When the good is elastic we reduce price to increase total revenue

Inthis case, when price falls, the quantity demanded is well above the quantity suplied and there is an increase in total revenue

Hope thsi helps