The following table shows a portion of the demand schedule for a particular good
ID: 1091205 • Letter: T
Question
The following table shows a portion of the demand schedule for a particular good at a single level of income.
Quantity Demanded
Price (Income = $50,000)
$24 2
$20 4
$16 6
$12 8
$8 10
$4 12
Refer to the table above.
a.Compute the price elasticity of demand between $24 and $20. Is demand price elastic or price inelastic over the interval? Interpret this number in a single sentence.
b.Compute the price elasticity of demand between $8 and $4. Is demand price elastic or price inelastic over the interval? Interpret this number in a single sentence.
c.Given your answers to questions a. a qnd b. above, in which of these situations would a lower price generate more sales revenue for this market?
Explanation / Answer
a)
price elasticity = ((20-24)/22)/((4-2)/3) = -0.27
it is price inelastic, demand is less sensitive to price
b)
price elasticity = ((4-8)/6)/(12-10)/11) = -0.03
it is all inealstic
in case a) lower price will generate more sales
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