Question

All questions must be answered in details ELASTICITY 4. Jumping Joe’s Night Club has found that when they offer half price admission to the club on Wednesday nights (when business is typically slow), their total revenue rises. (a) Is their demand elastic? Explain. (b) Is it a good idea for them to continue with this promotion? Why? 7. The elasticity of demand for Dave’s Famous is Pizza is 2.6. Dave is considering raising pizza prices by 20%. Is this a good idea? What will happen to his sales? His total revenue? Explain.

Answer 1

Demand is price elastic means when price of a good increases by a smaller amount, quantity demanded decreases by a greater amount than the change in price. Demand is price inelastic means percentage change in quantity demanded is less than percentage change in price.

So, in case of inelastic demand, change in price and change in total revenue moves in the same direction. In case of elastic demand change in price and change in total revenue moves in the opposite direction.

4. A) Jumping Joe's night club has found that when they lower the price on Wednesday Nights, the total revenue increases, that means change in price and change in total revenue moves in the opposite direction. This means demand is price elastic.

B) So it's a good idea for them to continue with the promotion because demand for their night club is price elastic. So if they continue with the promotion their total revenue will increase.

7. The elasticity of demand for Dave's pizza is 2.6 it means demand is price elastic, because the value of elasticity is greater than 1. if Dave is considering raising the price of pizza then his total revenue will decrease because in case of Elastic demand change in price and change in total revenue moves in opposite direction. So it's not a good idea for Dave to increase the price of pizza.

Elastic demand means percentage change in quantity demanded is greater than percentage change in price. So if Dev increases price of Pizza by 20% it will cause the quantity demanded to decrease by more than 20% that means his sales will decrease.