Final answer:
The own price elasticity of demand can be calculated using the formula: Elasticity of demand = Percentage change in quantity demanded / Percentage change in price.
The own price elasticity of demand in this case is -0.5, which indicates inelastic demand. This means that a 1% increase in price will result in a less than 1% decrease in quantity demanded, and total revenue will rise when the price increases.
Step-by-step explanation:
The own price elasticity of demand can be calculated using the formula:
Elasticity of demand = Percentage change in quantity demanded / Percentage change in price
The percentage change in quantity demanded can be calculated using the formula:
Percentage change in quantity demanded = ((New quantity demanded - Old quantity demanded) / Old quantity demanded) x 100%
The percentage change in price can be calculated using the formula:
Percentage change in price = ((New price - Old price) / Old price) x 100%
Using the given information:
Old price = $15
New price = $25
Old quantity demanded = 6,000
New quantity demanded = 4,000
Substituting these values into the formulas:
Percentage change in quantity demanded = ((4,000 - 6,000) / 6,000) x 100% = -33.33%
Percentage change in price = ((25 - 15) / 15) x 100% = 66.67%
Using these values to calculate elasticity of demand:
Elasticity of demand = (-33.33% / 66.67%) = -0.5
The own price elasticity of demand is negative, indicating an inverse relationship between price and quantity demanded. Since the value of -0.5 is less than 1, the demand for this good is inelastic. This means that a 1% increase in price will result in a less than 1% decrease in quantity demanded, and total revenue will rise when the price increases.