Question

a price change causes the quantity demanded of a good to decrease by 25 percent, while total revenue of that good decrease by 10 percent.Is the demand curve elastic or inelastic? Please Explain graphically

Answer 1

Hey Mate !

Now in your case, price was increased, which led to a 30% decrease in sales (Qd). And, in the end, revenue went up by 15%. So the price hike was more than enough to offset the decrease in sales. Thus, because the percent change to price was more than the percent change in Qd, we have inelastic demand.

As you can see, we started at a price of $1 and selling a quantity of 30, which gave us $30 in revenue. A 30% drop in quantity would bring sales down to 21. And a 15% increase in revenue would raise total revenue to $34.50. Dividing this new total revenue by the new quantity (sales), that gives us the new selling price of $1.64. And calculating the percentage change to price gives us just over 64%. So as you can easily see, the percent change to price was greater than the percentage change in quantity demanded. And that means we have inelastic demand. So with the higher price offsetting the drop in volume (sales), it led to our profiting.

Hope it helps u !