Question

Label the following scenarios as examples of elastic, inelastic, or unit elastic demand.

a. When Ruko, a device used to stream movies at home, increases prices by 57% total revenue decreases by 67%.
b. When Cinema Supreme decreases ticket prices by 33%, total revenue does not change.
c. When BlueBox, a DVD rental kiosk, increases its prices by 44%, total revenue increases by 25%.

Answer 1

Answer:

a) elastic

b) unit elastic

c) inelastic

Explanation:

a) An Increase in Prices by 57% leads to a total revenue decrease by 67%

This means an increase in the price, leads to a reduction in the quantity demanded which also had a ripple effect of decreasing the total revenue. This type of scenario means that the demand elastic (meaning price has a large or big effect on quantity demanded for Ruko

b) A decrease in ticket price does leads to a proportionate increase in demand leading to no effect on revenue. The Sale of Cinema Supreme ticket is unit elastic (price and quantity demanded have proportionate effect on each other).

c) An increase in the price of the DVD rental kiosk leads to an increase in Revenue. This means that a change in price does not have a significant effect on the quantity demanded. The demand is Inelastic (price has no significant effect on quantity demanded).