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In each case below, determine the effect on the sellers' total revenue and identify whether the demand curve in this particular market is elastic, inelastic, or unit-elastic in the relevant price range
In each case below, determine the effect on the sellers' total revenue and identify whether the demand curve in this particular market is elastic, inelastic, or unit-elastic in the relevant price range.
a. When the price per package of a brand of chocolate chip cookies increases from $3 to $4, monthly quantity demanded decreases from 20,000 to 14,000 packages.
Initial total revenue is $ and final total revenue is $ . Demand is
(Click to select)
unit-elastic
elastic
inelastic
.
b. A fall in the price of sugar from $5 to $4 per carton raises weekly quantity demanded from 25,000 to 30,000 cartons.
Initial total revenue is $ and final total revenue is $ . Demand is
(Click to select)
elastic
inelastic
unit-elastic
.
c. A rise in the quantity demanded of a monthly fashion magazine from 35,000 to 40,000 copies occurs when its newsstand price is reduced from $9 to $8.
Initial total revenue is $ and final total revenue is $ . Demand is
(Click to select)
inelastic
elastic
unit-elastic
.
d. Daily quantity demanded of a particular model of earphones rises from 2,000 to 2,400 earphones if the price drops from $180 to $150.
Initial total revenue is $ and final total revenue is $ . Demand is
(Click to select)
unit-elastic
elastic
inelastic
.
Expert Solution
a.
When Price = P = $3; Quantity Demanded = Q = 20,000 Packages
When Price = P' = $4; Quantity Demanded = Q' = 14,000 Packages
Initial Total Revenue = R = P * Q = 3 * 20,000 = 60,000
Final Total Revenue = R' = P' * Q' = 4 * 14,000 = 56,000
Percentage change in Price = (4-3)/((4+3)/2) = 1/3.5 = 28.57%
Percentage change in Quantity Demanded = (14,000-20,000)/((14,000+20,000)/2) = -35.29%
Elasticity = Percentage change in Quantity Demanded / Percentage change in Price = -35.29%/28.57% = -1.24
Demand is elastic.
b.
When Price = P = $5; Quantity Demanded = Q = 25,000 cartons
When Price = P' = $4; Quantity Demanded = Q' = 30,000 cartons
Initial Total Revenue = R = P * Q = 5 * 25,000 = 125,000
Final Total Revenue = R' = P' * Q' = 4 * 30,000 = 120,000
Percentage change in Price = (4-5)/((4+5)/2) = -1/4.5 = -22.22%
Percentage change in Quantity Demanded = (30,000-25,000)/((25,000+30,000)/2) = 18.18%
Elasticity = Percentage change in Quantity Demanded / Percentage change in Price = 18.18%/-22.22% = -0.82
Demand is inelastic
c.
When Price = P = $9; Quantity Demanded = Q = 35,000 copies
When Price = P' = $8; Quantity Demanded = Q' = 40,000 copies
Initial Total Revenue = R = P * Q = 9* 35,000 = 315,000
Final Total Revenue = R' = P' * Q' = 8 * 40,000 = 320,000
Percentage change in Price = (8-9)/((9+9)/2) = -1/9 = -11.11%
Percentage change in Quantity Demanded = (40,000-35,000)/((35,000+40,000)/2) = 13.33%
Elasticity = Percentage change in Quantity Demanded / Percentage change in Price = -(13.33%/11.11%) = -1.20
Demand is elastic
d.
When Price = P = $180; Quantity Demanded = Q = 2,000 earphones
When Price = P' = $150; Quantity Demanded = Q' = 2,400 earphones
Initial Total Revenue = R = P * Q = 180* 2,000 = 360,000
Final Total Revenue = R' = P' * Q' = 150 * 2,400 = 360,000
Percentage change in Price = (150-180)/((150+180)/2) = -30/165 = -18.18%
Percentage change in Quantity Demanded = (2,400-2,000)/(2400+2000)/2) = 18.18%
Elasticity = Percentage change in Quantity Demanded / Percentage change in Price = -(18.18%/18.18%) = -1
Demand is Unit elastic
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