1) Data: let's note Q as quantity and P as price. PED as price elasticity of demand and d as percentage change. Q1= 400 , Q2=450, P1= 20, P2= 18. PED = [d Q / (Q1+Q2)/2 ] /- [dP/(P1+p2)/2] Let's find the numerator
=(Q2-Q1)/(Q2+Q1)/2 = 2(Q2-Q1)/Q2+Q1) =2*50/850=100/850 =0.117
Now, let's find the denominator =(P2-Q1)/(P2+P1)/2 = 2(P2-P1)/P2+P1 =-2(18-20)/(18+20)=4/38 =0.105
Therefore: PED= 0.117/0.105 = 1.117 1.117 IS greater than 1. We can conclude that the price elasticity of demand is elastic
2) We can expect it to rise because the price elasticity of demand is greater than 1 which means prices decrease, the revenue increases. 3) Data: P1=18,p2=16 Q1=450, Q2=500 Using the same steps, we have :
The numerator = =(Q2-Q1)/(Q2+Q1)/2 = 2(Q2-Q1)/Q2+Q1) = 2(500-450)/500+450 =100/950 =0.105
The numerator: =-(P2-Q1)/(P2+P1)/2 = 2(P2-P1)/P2+P1 =-2(16-18) /16+18) =4/34 =0.117
Therefore the PED= 0.105/0.117 =0.897 or approximately 1. 4) No. There is no change in the total revenue 5) The total revenue is the product of the Quantity sold by the price of the product
Therefore: for the total revenue of 400 meal sold at an average of $20 is 8000
For 450 meal at the price of $18 is 8100
For 500 meal at the of $16 is 8000.
We can conclude that the demand is sensitive to the price
Reference :
Greenlaw. S. A & Shapiro. M. D(2022). Principles of economics. OpenStac
https://openstax.org/books/principles-economics-3e/pages/1-introduction