Answer to Question #275634 in Microeconomics for Sana

Question

The price of matchboxes doubles from Rs.4 to Rs.6, but the quantity purchased does not change. d) A price change causes the quantity demanded of a good to decrease by 30 percent, while the total revenue of that good increases by 15 percent. Is the demand curve elastic or inelastic?

Answer 1

c) If the price of matchboxes increase from Rs.4 to Rs.6, but the quantity purchased does not change then the price elasticity of demand is inelastic. It is because percentage change is quantity demanded is less than percentage change in price.

d) If a percentage change in price causes the quantity demanded of a good to decrease by 30 percent, but total revenue to increases by 15 percent then the demand curve is elastic. It is becauase percentage change is quantity demanded is greater than percentage change in price or revenue.