Question

Suppose that the price of good X rises from $12.00 to $12.90, and as a result the quantity demanded of good X falls from 5,000 units to 4,600 units. The (absolute value of) price elasticity of demand for good X is ___________________, indicating that good X is price ___________________. This increase in price caused total revenue to ________.

Answer 1

The price elasticity of demand is 1.14.

The price is Elastic.

Elasticity is more than one so total revenue will fall.

Step-by-step explanation:

Given the initial price of good x = $12

Final price of good x = $12.90

% change in price = [(12.90 - 12) / 12] x 100 = 7.5 %

Initial quantity = 5000

Final quantity = 4600

% change in quantity = [(4600 - 5000)/5000] x 100 = -8%

Elasticity = % change in quantity / % change in price

Elasticity = 8% / 7%

Elasticity = 1.14

The price elasticity of demand is 1.14.

The price is Elastic.

Since elasticity is more than one so total revenue will fall.