Question

As the price of good X rises from $1.50 to $1.75 the result is a decrease in the quantity demanded of good X from 650 units to 590 units. The price elasticity of demand for good X is _____________ and total revenue __________ as the price of good X rises from $1.50 to $1.75

Answer 1

0.63; rises

Step-by-step explanation:

The computation of the price elasticity of demand using the mid point formula which is shown below:

= (change in quantity demanded ÷ average of quantity demanded) ÷ (percentage change in price ÷ average of price)

where,

Change in quantity demanded would be

= Q2 - Q1

= 650 units - 590 units

= 60 units

And, average of quantity demanded is

= (650 units + 590 units) ÷ 2

= 620 units

Change in price would be

= P2 - P1

= $1.75 - $1.50

= $0.25

And, average of price is

= ($1.75 + $1.50) ÷ 2

= 1.625

So, after solving this, the price elasticity is 0.63

Since the price of good X rises from $1.50 to $1.75, so the total revenue rises