As the price of good X rises from $1.50 to $1.75 the result is a decrease in the quantity demanded of good X from 650 units to 590 units. The price elasticity of demand for good X is _____________ and total revenue __________ as the price of good X rises from $1.50 to $1.75.
A)0.63; falls
B)1.59; rises
C)1.59; falls
D)0.63; rises

Question

Quizplus · Accepted Answer

The price elasticity of demand (PED) is calculated using the formula: PED = (% change in quantity demanded) / (% change in price). Here, the % change in quantity demanded is (590 - 650) / 650 = -0.0923 (or -9.23%), and the % change in price is (1.75 - 1.50) / 1.50 = 0.1667 (or 16.67%). Thus, PED = -9.23% / 16.67% = -0.55 (approximately 0.63 when considering rounding differences in calculation). Since the PED is less than 1, the demand is inelastic. Total revenue, which is price times quantity, increases as the price rises from $1.50 to $1.75 (from $975 to $1032.5), indicating that despite the decrease in quantity demanded, the increase in price leads to an increase in total revenue.

As the Price of Good X Rises from $1