The following graph shows the daily demand curve for bikes in Denver. Use the gr
ID: 1148728 • Letter: T
Question
The following graph shows the daily demand curve for bikes in Denver.
Use the green rectangle (triangle symbols) to compute total revenue at various prices along the demand curve.
On the following graph, use the green point (triangle symbol) to plot the annual total revenue when the market price is $30, $45, $60, $75, $90, $105, and $120 per bike.
According to the midpoint method, the price elasticity of demand between points A and B is approximately [0, 0.33, 3, 7.5].
Suppose the price of bikes is currently $30 per bike, shown as point B on the initial graph. Because the demand between points A and B is [elastic, inelastic, unit elastic] a $15-per-bike increase in price will lead to [a decrease, an increase, no change]
In general, in order for a price decrease to cause a decrease in total revenue, demand must be [elastic, inelastic, unit elastic]
180 165 150 135 120 105 Total Revenue G 90 75 60 45 30 15 Demand 0 3 6 9 12 15 18 2 24 27 30 33 36 QUANTITY (Bikes)Explanation / Answer
Question 1). Solution :-
Calculation of price elasticity of demand between points A and B in the demand curve :-
Price elasticity of demand = % Change in quantity demanded / % Change in price.
% Change in quantity demanded = (24 - 21) / [ 21 + 24 ] / 2
= 3 / 22.50
= 0.1333 i.e., 13.33 %
% Change in price = (45 - 30) / [ 45 + 30 ] / 2
= 15 / 37.50
= 0.40 i.e., 40 %
Accordingly, Price elasticity of demand = 13.33 % / 40 %
= 0.33 (approx).
Conclusion :- Price elasticity of demand between points A and B = 0.33 (Option B).
Question 2). Answer :- inelastic, an increase.
Explanation :- Price elasticity of demand between points A and B is inelastic as the elasticity between the points A and B is lesser than the one.
Question 3). Answer :- inelastic.
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