Homework Answers
Price elasticity of demand = (% change in quantity demand / % change in price)
Quantity demanded of good rises from 4 to 8.
% change in quantity demand = [(8-4) / 4] * 100
% change in quantity demand = 100.
Price falls from $8 to $6.
% change in price = [(6 - 8) / 8] * 100
% change in price = -25
Price elasticity of demand = (100) / (-25)
Price elasticity of demand = -4.
The price elasticity of demand is -4.
| Quantity demand | Price | Total Revenue |
| 4 | 8 | 32 |
| 8 | 6 | 48 |
Total revenue = Quantity demand * Price
Hence the total revenue rise.
Note: In case of elastic demand, there is negative relationship between the price and total revenue. So a fall in price level from $8 to $6 leads to increase in total revenue.
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