[Deiidara]

I am confused with Price Elasticity Demand.
Questions 1:
Good A
Change in Demand: -10%
Change in Price: 20%
Answer: The Revenue goes up

Shouldn't the Revenue be going down since the formulae is:
% change in quantity demanded
% change in price
= -10/20 = -0.5 since it is Price inelastic Revenue should go down.

Next question is who I got

Question 2:
When the price of a good rises from $10 to $11, its demand falls from 20000 per month to 19000. Which of the following statements is correct?( this is a Objective question) The Answer was The good is price inelastic
Price Elasticity =
% change in quantity demanded
% change in price
= -5/10 = -0.5 so its Price Inelastic

I know how to do question 2 but question 1, how did the revenue went up since between 0 and -1 it should be price inelastic

[Deiidara]

anyone?

[Flinders87]

If a price is raised and the PED is inelastic this means revenue will rise. If a price is lowered and the PED is inelastic, this means revenue will fall.

[King James]

A price inelastic good is one that are still consumed when there is a change in price e.g. the price of petrol goes, people still consume it, therefore revenue goes up

[AshleyUK]

I understand question 1, it's simply as that guy said, If a product is inelastic then if a price rises, the demand will decrease but only slightly so the revenue will go up, but if the price decreases then demand will only slightly increase but revenue will go down.

Question 2 however, I don't understand how you work out the original percentages to go off

How did you work out that the % change in quantity demanded was 5 and how did you work out the % change in price was 10?

Question 2:
When the price of a good rises from $10 to $11, its demand falls from 20000 per month to 19000. Which of the following statements is correct?( this is a Objective question) The Answer was The good is price inelastic
Price Elasticity =
% change in quantity demanded
% change in price
= -5/10 = -0.5 so its Price Inelastic

[studenthelp1]

The product is inelastic (presumably you know this means demand will NOT change a lot in relation to a change in price).

Lets take an example:

Cleaning services:
% change in QD = - 10%
% change in P = + 20%
PED = -0.5 (INELASTIC).

Say price increases from £100 a day to £120 a day, and demand decreases from 100 customers a day to 90 customers a day.
Original revenue = 100 (customers) x £100 = £10,000 REVENUE PER DAY.
New revenue = 90 (customers) x £120 = £10,800 REVENUE PER DAY.

Hope this helps.

[hardleyouth]

Elasticity refers to the RESPONSIVENESS to price changes (for PED), inelastic good's demand changes by a level LESS than the level of price change because it is INelastic and therefore fairly UNresponsive, but ofcourse, not entirely unresponsive, unless it has a PED of 0 or greater......but then we get into Veblen and Giffen goods, and speculative goods! But forget those for the moment, although they are part of unit 1.

EG, if the price rises by 10% percent, demand WILL fall, BUT NOT by 10%, but by a lesser percentage, therefore income to the seller/producer will increase

It does seem complicated at first, but then when you get your head around it you wonder why it was ever difficult!

[hardleyouth]

Also, its probably better to ignore the minuses at the start of PED figures, they just confuse you, the important bit is is whether it is above or below 1. (or -1 as it is likely to be written...as they LOVE to try confuse you)

[Jay™]

The change in demand is less than the change in price. Therefore even though theres less demand the firm makes more revenue as they are charging more.

[Salisa]

price of the good multiplied by the quantity of the good is equal revenue therefore if the price or the quantity of the good or product increases .... the revenue also increases and vice versa
price x quantity = revenue