Ironside Industries, Inc., is a leading manufactuer of tufted carpeting under the Ironside brand. Demand for Ironside's products is closely tired to the overall pace of building and remodeling activity and, therefore, is highly senstitive to change in national income. The carpet manufacturing industry is highly competitive, so Ironside's demand is also very price-sensitive.
During the past year, Ironside sold 30 million square yards (units) of carpeting at an average wholesale price $15.50 per unit. This year, household income is expected to surge from $55,500 to $58,500 per year in a booming economic recovery.
A. Without any price change, Ironside's marketing director expects current-year sales to soar to 50 million units because of rising income. Calculate the implied income arc elasticity of demand.
B. Given the projected rise in income, the marketing director believes that a volume of 30 million units could be maintained despite an increase in price of $1 per unit. On the basis, calculate the implied are price elasticity of demand.
C. Holding all else equal, would a further increase in price result in higher or lower total revenue?