In July 1994, a French newspaper "Le Quotidien", suspended the publication. In order to promote their income in the face of increasing competition and the recession in France, "Le Quotidien" cut its price of 6-4 francs. Its circulation rose from 30,000 to 40,000 copies but this caused a reduction in income of 180,000 francs per day to 160,000.
The demand curve was found to have an arc elasticity of -0.71. Similar action resulted in a decrease in the price of the London Times in September 1993. The price dropped from 45 to 30 pence, while the daily prices of its competitors were unchanged between August 1993 and May 1994, the Times newspaper's daily circulation rose from 355,000 to 518.000 only, which meant a decrease in the entry. Again the demand curve seems to be inelastic.
a. What is the arc elasticity of demand for the London Times?
b. What happened to income as a result of the decline in the price?