Explain
why the choice between 1, 2, 3, 4, 5, 6, and 8 “units,” or 1,000, 2,000, 3,000, 4,000, 5,000, 6,000, 7,000, and 8,000 movie tickets, makes no difference elasticity in Table 6.1. LO6.1
Explanation of Solution
Price elasticity of demand can be calculated by using the below formula:
Price elasticity of demand for changing 1 unit to 2 units can be calculated by substituting the respective values in equation (1).
Price elasticity of demand for changing the quantity from 1 to 2 is 5 (ignore the sign).
Table -1 shows the price elasticity for the demand for changing quantity from one unit to other units that was obtained by using equation (1).
Table -1
Quantity in units | Price | Elasticity |
1 | 8 | |
2 | 7 | 5 |
3 | 6 | 2.6 |
4 | 5 | 1.57 |
5 | 4 | 1 |
6 | 3 | 0.64 |
7 | 2 | 0.38 |
8 | 1 | 0.26 |
Table-2 shows the price elasticity for the demand for changing quantity from one unit to other units that was obtained by using equation (1).
Table -2
Quantity (Actual) | Price | Elasticity |
1,000 | 8 | |
2,000 | 7 | 5 |
3,000 | 6 | 2.6 |
4,000 | 5 | 1.57 |
5,000 | 4 | 1 |
6,000 | 3 | 0.64 |
7,000 | 2 | 0.38 |
8,000 | 1 | 0.26 |
Table-1 and Table-2 clearly show that the elasticity of demand is the same regardless of the demand quantity in units or quantity demand in actual numbers. Thus, it makes no difference in determining price elasticity of demand for both the cases.
Concept introduction:
Price elasticity of demand: Price elasticity of demand is defined as the percentage change in the quantity demanded due to percentage change in price. In other words, price elasticity of demand represents the relationship between change in quantity of a specific good and the price change.
Want to see more full solutions like this?
Chapter 6 Solutions
Economics (Irwin Economics)
- (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of Si per unit. A reduction in price to $0.20 results in an increase in quantity demanded to 70 units. Using the midpoint formula, show that these data yield a price elasticity of 0.25. By what percentage would a 10 percent rise in the price reduce the quantity demanded, assuming price elasticity remains constant along the demand curve?arrow_forwardSuppose you are in change of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your companys product at the current price is 1.4, would you advise the company to raise the price, lower the price, or to keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.arrow_forwardSuppose the demand for a Nintendo console is P = 600 - 0.05Q, where P represents the price of a console (in dollars) and Q is the number of Nintendo consoles sold in a certain market. If the price of each console is $300, what is the price elasticity of demand for Nintendo consoles in that market? O -0.0025 O -0.05 O-1 O-1.5 0-2arrow_forward
- Assume that a decrease of 10 percent in the price of cars results in an increase of 30 percent in quantity demanded, then the price elasticity of demand is 3 O 0.5 O 1 O 0.333arrow_forwardC) You sell two different goods: printers and toner cartridges. The price elasticity of demand for the printers is -3.4, and you earn a revenue of RM15,000 per month from the good. You earn a revenue of RM5,000 per month from the toner cartridges. The cross-price elasticity of demand for both of the goods is -2.5 if you decide to decrease the price of the printers by 5%, calculate your new total revenues for both of the goods.arrow_forwardOn the following graph, use the green point (triangle symbol) to plot the annual total revenue when the market price is $30, $45, $60, $75, $90, $105, and $120 per bike. 1280 1200 Total Revenue 1120 - 1040 980 880 800 720 640 560 o15 30 45 60 75 90 105 120 135 150 165 180 PRICE (Dollars per bike) According to the midpoint method, the price elasticity of demand between points A and B is approximately ▼ Suppose the price of bikes is currently $30 per bike, shown as point B on the initial graph. Because the demand between points A and B is a $15-per-bike increase in price will lead to in total revenue per day. In general, in order for a price decrease to cause a decrease in total revenue, demand must be TOTAL REVENUE (Dollars)arrow_forward
- If an increase in price from $1 to $2 causes a decrease in quantity demanded from 120 to 100, calculate the price elasticity of demand by using the midpoint method. O 1.2 O 1.3 O 0.27 O 0.5arrow_forwardSuppose that the elasticity of supply is 1.60 and the price increases by 5%. We will predict a percent increase in the quantity supplied of: 8% 6% O 3.1% 12%arrow_forwardIf the price of Moonlight massage oil decreases from $3 to $2.50 and, as a result, total revenue increases from $6,000 to $7,500, what is the elasticity of demand. O 22. O 1.22. O 0.55. O 1.67. O 0.22.arrow_forward
- In 2003, when music downloading first took off, Universal Music slashed the average price of a CD from $21 to $15. The company expected the price cut to boost the quantity of CDs sold by 30 percent, other things remaining the same. What was Universal Music’s estimate of the price elasticity of demand for CDs? If you were making the pricing decision at Universal Music, what would be your pricing decision? Explain your decision.Typed and correct answer please. I ll ratearrow_forwardFor product X, the price elasticity of demand has an absolute value of 3.5. This means that quantity demanded will increase by O 1 unit for each $3.50 decrease in price, ceteris paribus. O 1 percent for each 3.5 percent decrease in price, ceteris paribus. O 3.5 units for each $1 decrease in price, ceteris paribus. O 3.5 percent for each 1 percent decrease in price, ceteris paribus.arrow_forwardSuppose the price elasticity of demand for the market of mobile phones is 0.90. If all mobile-phone companies simultaneously increased their prices, will total revenue in the industry increase or decrease? If a single mobile-phone company increased its price, would you expect the company’s total revenue to increase or decrease? Explain. Suppose that the price in the market is initially $10 and the quantity demanded is 100 units. If the price in this market increases by 10%, what will be the percentage change in the quantity demanded? Give me long detalied answer pleasearrow_forward
- Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax