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Chapter 19: Q. 7 (page 434)

In the market for hand-made guitars, when the price of guitars is \(800, annual revenues are \)640,000. When the price falls to \(700, annual revenues decline to \)630,000. Over this range of guitar prices, is the demand for hand-made guitars elastic, unit-elastic, or inelastic?

Short Answer

Expert verified

The demand for hand-made guitars inelastic.

Step by step solution

01

Introduction

The price elasticity of demand is deemed inelastic if it is less than one.

The cost of a guitar is 8,000dollars, and the annual revenue is $640,000. The revenue decreases when the price is reduced from $8,000to $7,00.

02

Explanation

The revenue drops from $640,000to $630,000. When the price and revenue vary in the same direction, the elasticity of demand is deemed inelastic. Both the price and the revenue drop in this case. As a result, demand for custom-made guitars is inelastic.

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Most popular questions from this chapter

Suppose that over a range of prices, the price elasticity of demand varies from 15.0 to 2.5. Over another range of prices, the price elasticity of demand varies from 1.5 to 0.75. What can you say about total revenues and the total revenue curve over these two ranges of the demand curve as price falls?

Would the estimated price elasticity of demand for movie tickets have been different if we had not used the average-values formula? How?

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