Question

Refer to the demand schedule below Quantity demanded Price 80 70 60 50 40 30 20 10 50 100 150 200 250 300 350 400 a. Suppose the price increases from $10 to $20. Demand is inelasticand total revenue increases b. Suppose the price increases from $30 to $40. Demand is (inelastic $) and total revenue increases c. Suppose the price increases from $50 to $60. Demand is elastic and total revenue increases

Demand can either be elastic, inelastic or unit elastic

Total revenue can increase, decrease, or stay the same

Please provide the work done :)

Answer 1

Point elasticity

Price elasticity of demand (PED)= % change in quantity demanded /% change in price of the good.

% change in quantity demanded = ((New quantity-old quantity)/old quantity)) x 100

1. Suppose the price increases from $10 to $20

Old quantity 350      Old price $ 10

New quantity 300   New price $ 20

% change in quantity demanded= ((300-350)/350)) x100

                                                         =( -50/350) x100

                                                       =-14.29%

% change in price = ((New price-old price)/old price)) x 100

                                 =((20-10) /10) x100

                                 = (10/10) x 100

                                 = 100%

Price elasticity of demand = -14.29%/100%=-0.14

The sign does not matter, PED is always stated without the sign. It is inelastic since Ped is <1.

Revenue= P x Q

When price is $10, quantity sold is 350. Revenue= $10 x 350= $3,500.

When price is $20, quantity sold is 300. Revenue= $20 x 300= $6,000.

Revenue increases by $2,500 ($6,000 - $3,500). When price rises and demand is inelastic, total revenue rises.

1. b) Suppose the price increases from $30 to $40

Old quantity 250      Old price $ 30

New quantity 200   New price $ 40

% change in quantity demanded = ((New quantity-old quantity)/old quantity)) x 100

% change in quantity demanded= ((200-250)/250)) x100

                                                         =( -50/250) x100

                                                       =-20%

% change in price = ((New price-old price)/old price)) x 100

                                 =((40-30) /30) x100

                                 = (10/30) x 100

                                 = 33.33%

Price elasticity of demand = -20%/33.33%=-0.6

The sign does not matter, PED is always stated without the sign. It is inelastic since Ped is <1.

Revenue= P x Q

When price is $30, quantity sold is 250. Revenue= $30 x 250= $7,500.

When price is $40, quantity sold is 200. Revenue= $40 x 200= $8,000.

Revenue increases by $ 500 ($8,000 - $7,500). When price rises and demand is inelastic, total revenue rises.

3. Suppose the price increases from $50 to $60

Old quantity 150      Old price $ 50

New quantity 100   New price $ 60

% change in quantity demanded = ((New quantity-old quantity)/old quantity)) x 100

% change in quantity demanded= ((100-150)/150)) x100

                                                         =( -50/100) x100

                                                       =-50%

% change in price = ((New price-old price)/old price)) x 100

                                 =((60-50) /50) x100

                                 = (10/50) x 100

                                 = 20%

Price elasticity of demand = -50%/20%=-2.5

The sign does not matter, PED is always stated without the sign. It is elastic since Ped is >1.

Revenue= P x Q

When price is $50, quantity sold is 150. Revenue= $50 x 150= $7,500.

When price is $60, quantity sold is 100. Revenue= $60 x 100= $6,000.

Revenue decreases by $ 1,500 ($6,000 - $7,500). When price rises and demand is elastic, total revenue falls.