Calculation of elasticity of demand and marginal revenue.
Use the following hypothetical demand schedule for tea to answer the following question:
Quantity demanded/ week
|
Price/ Oz.
|
(Elasticity)
|
1,000 oz.
|
$5
|
|
800
|
10
|
|
600
|
15
|
|
400
|
20
|
|
200
|
25
|
|
a.Using the above demanded schedule, describe the elasticity of demand for each price change. (Example: when price changes from $5 to $10, quantity demanded changes from 1000 to 800 oz., so the elasticity of demand, using average values, is 1/3 or 0.33).
b.The data given in the demanded schedule would plot as a straight line demand curve. Illustrate why is demand more elastic the higher the price gets?