Question

c. Describe quantity and revenue responses to price changes when the price elasticity of demand €) takes on the following values: (i) e = 0, (ü) 0 > >-1, (ü) € = -1, (iv) < -1.

Answer 1

1) if elasticity is zero, then whatever the price may be the quantity would always remain same and therefore there would be no quantity change but if the price increases due to constant quantity the revenue increases and vice versa

2). The elasticity is between 0 and -1 then it is relatively inelastic in natureas a result of which the quantity demand decreases plus proportionately with the price increase and therefore increase in price, increases the revenue.

3) If the elasticty is -1 then it is unit elastic and this means the quantity decrease when the price increase is proportionate and therefore the revenue remains constant with the price change

4) if e <-1, when demand is elastic in nature as a result of which if the price increases the quantity demanded decreases more proportionately and therefore, revenue decreases with increase in price