Thousands of tourists visit Paris every year to see the Eiffel Tower. When the price of admission to the Eiffel Tower was 9 Euros, approximately 6.9 million people visited the tower every year. The French government knows that if they decided to increase the price to 10 Euros, demand to visit the Eiffel Tower would reduce by 0.1 million people. If the demand curve is taken to be linear, it would slope downwards at a rate of 10 Euros/million people. Most tourists consider the Eiffel tower as a "must-see tourist attraction". This could explain why a relatively large percentage increase in the price of admission led to a relatively smaller percentage decrease in tickets demanded. If the demand for admission to the Eiffel Tower is taken to be linear, the point elasticity of demand would be inelastic at every point along the entire demand curve. Which of the following statements are true: Only 1 is true. Only 2 is true. Both 1 and 2 are true. Both 2 and 3 are true. All three are true.
Question
Thousands of tourists visit Paris every year to see the Eiffel Tower. When the price of admission to the Eiffel Tower was 9 Euros, approximately 6.9 million people visited the tower every year. The French government knows that if they decided to increase the price to 10 Euros, demand to visit the Eiffel Tower would reduce by 0.1 million people.
If the demand curve is taken to be linear, it would slope downwards at a rate of 10 Euros/million people. Most tourists consider the Eiffel tower as a "must-see tourist attraction". This could explain why a relatively large percentage increase in the price of admission led to a relatively smaller percentage decrease in tickets demanded. If the demand for admission to the Eiffel Tower is taken to be linear, the point elasticity of demand would be inelastic at every point along the entire demand curve. Which of the following statements are true:
Only 1 is true.
Only 2 is true.
Both 1 and 2 are true.
Both 2 and 3 are true.
All three are true.
Solution
Both 2 and 3 are true.
Statement 1 is not true. The slope of the demand curve is calculated as the change in quantity demanded divided by the change in price. In this case, the change in quantity demanded is -0.1 million people and the change in price is 1 Euro, so the slope would be -0.1 million people per Euro, not 10 Euros per million people.
Statement 2 is true. The Eiffel Tower is a "must-see" attraction for many tourists, which could explain why demand is relatively inelastic (i.e., a relatively large percentage increase in price leads to a relatively small percentage decrease in quantity demanded).
Statement 3 is also true. If demand is inelastic at every point along the demand curve, then the point elasticity of demand would be less than 1 in absolute value at every point along the curve. This is consistent with the idea that the Eiffel Tower is a "must-see" attraction for which demand does not change much in response to changes in price.
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