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100 POINTS MICROECONOMICS

A local drinking establishment recently raised its price of a draft beer from $4 to $5. As it did, the number of beers it sold decreased from 5,000 to 4,000 per month of this particular brew.

Over this price range, what was the elasticity of demand for this beer?

What was the degree of elasticity for this beer?

A 1% change in the price of this beer led to a change in quantity demanded of ___%?

What happened the bar’s total revenue as it raised its price?

Sagot :

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1) Over this price range ($4 to $5), the elasticity of demand for this beer is positive but less than one.

2) The degree of elasticity for this beer is 0.8.

3) A 1% change in the price of this beer led to a change in quantity demanded of 0.8%.

4) The total revenue when the price was raised by the local drinking establishment changed by $0.

What is the elasticity of demand?

The elasticity of demand refers to the sensitivity of demand to economic factors, for example, price.

This index is known as price elasticity.  Price elasticity is computed by dividing the change in demand (or supply) by the change in price.

Data and Calculations:

The old price of draft beer = $4

The new price of draft beer = $5

Increase in the price of draft beer = $1 ($5 - $4)

Percentage increase in price = 25% ($1/$4 x 100)

Sales units under old price = 5,000

Sales units under new price = 4,000

Decrease in sales units = 1,000 units (5,000 - 4,000)

Percentage decrease in sales units = 20% (1,000/5,000 x 100)

Degree of elasticity of demand = Percentage Change in Quantity/Percentage Change in Price

= 0.8 (20%/25%)

Learn more about price elasticity at https://brainly.com/question/6791468

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