If the Detroit Pistons raise their ticket prices and see ticket revenues fall (holding all else...

If the Detroit Pistons raise their ticket prices and see ticket revenues fall (holding all else equal), we can conclude that

a. the supply of tickets is too high.

b. the demand for tickets is too low.

c. the demand for tickets is price inelastic.

d. the demand for tickets is price elastic.

Solutions

Expert Solution

As with the law of demand, in case of the normal good, if the price of the commodity increases then the demand for that good reduces, keeping the other factor constant. Similarly in this question as the price of the ticket increases quantity falls.

Again, total revenue is equal to the price of the good times quantity or TR = P * Q. As given in the question that price of ticket increases but ticket revenue fall that is possible only in case of when quantity fall much more than the proportion of price increases. So this disproportionately large fall in quantity impacts falls in ticket revenue.

As we know that the general formulae of elasticity of demand are percentage change in quantity due to the percentage change in price, as with the above discussion concluded that the percentage fall in quantity is more than the percentage increase in price and so the elasticity of demand is less than -1. And so the elasticity of demand is price elastic, hence correct option is (D).

Rahul Sunny answered 1 year ago

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