| Question |
The demand for bottled water in a small town is as follows: P (per bottle) QD (bottles per week) $1.00 …………500 $1.50 ………….400 $2.00 ………….300 $2.50 ………….200 $3.00 ………….100 a. Is this a straight-line demand curve? How do you know? b. Calculate the price elasticity of demand for bottled water for a price rise from $1.00 to $1.50. Is demand elastic or inelastic for this price change? c. Calculate the price elasticity of demand for a price rise from $2.50 to $3.00. Is demand elastic or inelastic for this price change? d. According to the chapter, demand should become less and less elastic as we move downward and rightward along a straight-line demand curve. Use your answers in b. and c. to confirm this relationship. e. Create another column for total revenue on bottled water at each price. f. According to the chapter, a rise in price should increase total revenue on bottled water when demand is inelastic, and decrease total revenue when demand is elastic. Use your answers in b. and c., and the new total revenue column you created, to confirm this. |
