A price change causes the quantity demanded of a good to decrease by 20 percent, while the total revenue of that good increases by 10 percent

Economics Dec 15, 2020

A price change causes the quantity demanded of a good to decrease by 20 percent, while the total revenue of that good increases by 10 percent. Is the demand curve elastic on inelastic? Calculate and explain.

Expert Solution

Revenue increased while quantity declined is the sign of increase in price of the product. Otherwise revenue would have been decreased.

Elasticity = Percentage Change in Demand / Percentage Change in Price

Assume 30% is the increases in price.

And 20% is the decrease in quantity

Elasticity = -20/ +30

= -0.66

If elasticity is less than zero, then the good is inelastic.

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote