When the local used bookstore prices economics books at $15.00 each,they generally sell 70 books per month.If they lower the price to $7.00,sales increase to 90 books per month.Given this information,we know that the price elasticity of demand for economics books is about
A)2.91, and an increase in price from $7.00 to $15.00 results in an increase in total revenue.
B)2.91, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue.
C)0.34, and an increase in price from $7.00 to $15.00 results in an increase in total revenue.
D)0.34, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue.

Question

Quizplus · Accepted Answer

Price Elasticity of Demand (PED) can be calculated using the formula:
% change in quantity demanded / % change in price

Using the given information, we can calculate the PED as follows:
Change in quantity demanded = 90-70 = 20
% change in quantity demanded = (20/70) * 100 = 28.57%

Change in price = 15-7 = 8
% change in price = (8/15) * 100 = 53.33%

PED = % change in quantity demanded / % change in price = 28.57% / 53.33% ≈ 0.34

Since the PED value is less than 1 (in absolute value), the demand is inelastic. This means that an increase in price from $7.00 to $15.00 will result in an increase in total revenue. Therefore, option C is the correct choice.

When the Local Used Bookstore Prices Economics Books at $15