Unformatted text preview: price changes. If demand is elastic  the quantity demanded is price sensitive and small increase in price will result in large decrease in quantity sold (percentage decrease in Q is larger than percentage increase in P ), the total revenue will fall . This is what was required for full marks. Problem 3 (5 marks) Q 1 = 30 (a) P 2 = 1, P 2 = 1 . 25 Q 1 = 39. Δ P 2 = . 25, Δ Q 1 = 9. Using the initial price and quantity: E 12 = 9 . 25 · 2 30 = 1 . 2. Substitutes. Using average price and quantity is okay as long as the formula is provided. (b) M = 25 , 000 M = 30 , 000, Q 1 = 36. E M = 6 5 , 000 · 25 , 000 30 = 1. Normal good. 1...
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 Spring '09
 Iryina
 Microeconomics, Supply And Demand, 10 dollars, 000 m

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