Question

Label the scenarios as examples of elastic, inelastic, or unit elastic demand.

When Ruko, a device used to stream movies at home, increases prices by 39 %, total revenue decreases by 57 %.
When Cinema Supreme increases ticket prices by 26 %, total revenue does not change.
When Bluebox, a DVD rental kiosk, increases its prices by 47 %, total revenue increases by 34 %.

Answer 1

EAnswer:

Elastic demand

Unit elastic demand

Inelastic demand

Step-by-step explanation:

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.

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

If the absolute value of price elasticity is greater than one, it means demand is elastic. Elastic demand means that quantity demanded is sensitive to price changes.

Demand is inelastic if a small change in price leads to little or no change in the quantity demand. If the absolute value of elasticity of demand is less than 1, demand is inelastic

Demand is unit elastic if a change in price leads to the same proportional change in quantity demand. The absolute value of unit elasticity is equal to one.

1. 57/39 = 1.46

Because the absolute value of elasticity is greater than 1, demand is inelastic.

2. When prices were increased, there was no change in revenue, it means that demand is unit elastic

3. 34/47 = 0.72

Because the elasticity of demand is less than one, demand is inelastic

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