Suppose that the total revenue received by a company selling basketballs is $600 when the price is set at $30 per basketball and $600 when the price is set at $20 per basketball. Without using the midpoint formula, identify whether demand is elastic, inelastic, or unit-elastic over this price range. Demand is multiple choiceinelastic.elastic.unit-elastic.
Question
Suppose that the total revenue received by a company selling basketballs is 30 per basketball and 20 per basketball. Without using the midpoint formula, identify whether demand is elastic, inelastic, or unit-elastic over this price range. Demand is multiple choiceinelastic.elastic.unit-elastic.
Solution
To determine whether the demand is elastic, inelastic, or unit-elastic, we need to understand how the quantity demanded changes in response to a change in price.
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First, let's calculate the quantity of basketballs sold at each price. At 600, so they sold 600/30 = 20 basketballs. At 600, so they sold 600/20 = 30 basketballs.
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Now, let's look at the percentage change in price and quantity. The price decreased from 20, which is a decrease of (30-20)/30 = 33.33%. The quantity increased from 20 to 30 basketballs, which is an increase of (30-20)/20 = 50%.
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If the percentage change in quantity demanded is greater than the percentage change in price, demand is elastic. If the percentage change in quantity demanded is less than the percentage change in price, demand is inelastic. If the percentage change in quantity demanded is equal to the percentage change in price, demand is unit-elastic.
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In this case, the percentage change in quantity (50%) is greater than the percentage change in price (33.33%), so demand is elastic.
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