Ghose and Han (2014) found that the elasticity of demand for Google Play apps is −3.7....
Ghose and Han (2014) found that the elasticity of demand for Google Play apps is −3.7. This elasticity applies to a small college town where approximately 1,000 apps per month are sold. If price rises by 10%, what would be the effect on quantity demanded? The quantity demanded will decrease by 37 percent. Would revenue rise or fall? Revenue would fall .
What is the percentage change in revenue using information above? (Enter your response rounded to two decimal places.)
Homework Answers
Let initial price and quantity be P0 and Q0 respectively.
Initial revenue (R0) = P0 x Q0
After price rises,
New price (P1) = P0 x 1.10
New quantity (Q1) = Q0 x (1 - 0.37) = Q0 x 0.63
New revenue (R1) = P1 x Q1 (P0 x 1.1) x (Q0 x 0.63) = (1.1 x 0.63) x (P0 x Q0)= 0.693 x R0
% Change in revenue = (R1 - R0)/R0 = [(0.693 x R0) - R0] / R0 = (0.693 - 1) / 1 = -0.3070 = -30.70%
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Ghose and Han (2014) found that the elasticity of demand for
Google Play apps is −3.7....
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