Question

Danny "Dimes" Donahue is a neighborhood’s 9-year-old entrepreneur. His most recent venture is selling homemade brownies that he bakes himself. At a price of $1.75 each, he sells 100. At a price of $1.25 each, he sells 300. Round your answer to 1 decimal place. What is the elasticity of demand? Is demand elastic or inelastic over this price range? If demand had the same elasticity for a price decline from $1.25 to $0.75 as it does for the decline from $1.75 to $1.25, would cutting the price from $1.25 to $0.75 increase or decrease Danny's total revenue?

Answer 1

Relative responsiveness of consumer to change in price is called elasticity of demand.

Elasticity of demand here is 7.

Demand is highly elastic.

Cutting the price from $1.25 to $0.75, total revenue remains same as the elasticity of demand does not change.

Step-by-step explanation:

Percentage change in quantity demanded due to percentage change in price.

Elasticity of demand=% change in quantity demanded/percentage change in price.

Small change in price caused a huge change in quantity demanded.