The percentage change in demand if prices is increased by $0.05. Also, the changed price elasticity.
Explanation of Solution
Given Information:
Price is $0.50
Current consumption level is 100,000
Calculation:
Firstly, price elasticity will be determined which is as follows:
Since, price elasticity is given and percentage change in price is computed then percentage change in demand will be calculated using following formula:
Therefore, if price is increased by 10% then quantity demanded will be decreased by 12%.
The quantity demand will be reduced by 12000. The price elasticity will be computed as follows:
Price elasticity will be same as % change in quantity is 12% and % change in price is 10%. Therefore, price elasticity will be 1.2 (=12%/10%)
Chapter 46 Solutions
Krugman's Economics For The Ap® Course
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