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When the local used bookstore prices Economics books at $15.00 each, they generally sell 70 per month. If they lower the price to $7.00 each they sell 90. Given this, we know that the elasticity of demand for economics books isa.2.91, so this store should raise price to raise total revenue.b.0.34, so this store should lower price to raise total revenue.c.0.34, so this store should raise price to raise total revenue.d.2.91, so this store should lower price to raise total revenue.

Question

When the local used bookstore prices Economics books at 15.00each,theygenerallysell70permonth.Iftheylowerthepriceto15.00 each, they generally sell 70 per month. If they lower the price to 7.00 each they sell 90. Given this, we know that the elasticity of demand for economics books isa.2.91, so this store should raise price to raise total revenue.b.0.34, so this store should lower price to raise total revenue.c.0.34, so this store should raise price to raise total revenue.d.2.91, so this store should lower price to raise total revenue.

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Solution

To answer this question, we first need to calculate the price elasticity of demand. The formula for price elasticity of demand is:

% change in quantity demanded / % change in price

First, calculate the percentage change in quantity demanded:

(90 - 70) / 70 = 0.2857 or 28.57%

Then, calculate the percentage change in price:

(15 - 7) / 15 = 0.5333 or 53.33%

Now, divide the % change in quantity demanded by the % change in price to get the price elasticity of demand:

0.2857 / 0.5333 = 0.5354

This value is less than 1, which means the demand is inelastic. Therefore, the correct answer is:

c.0.34, so this store should raise price to raise total revenue.

Please note that the calculated elasticity is not exactly 0.34 due to rounding in the calculations, but it's the closest option among the given choices.

This problem has been solved

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