When a university bookstore prices chemistry textbooks at $200 each,it generally sells 120 books per month.If it lowers the price to $160,sales increase to 160 books per month.Given this information,we know that the price elasticity of demand for chemistry books is about
A)1.29,and a decrease in price from $200 to $160 results in an increase in total revenue.
B)1.29,and a decrease in price from $200 to $160 results in a decrease in total revenue.
C)0.78,and a decrease in price from $200 to $160 results in an increase in total revenue.
D)0.78,and a decrease in price from $200 to $160 results in a decrease in total revenue.

Question

Quizplus · Accepted Answer

Price elasticity of demand = (% change in quantity demanded)/(% change in price)
Using the information given, we can calculate the price elasticity of demand:
% change in quantity demanded = (160-120)/120 = 0.33 (33% increase)
% change in price = (200-160)/200 = 0.2 (20% decrease)
Price elasticity of demand = (0.33/0.2) = 1.65
Since the price elasticity of demand is greater than 1, we know that demand is elastic. This means that a decrease in price will lead to an increase in total revenue. Therefore, choice A) is the best answer.

When a University Bookstore Prices Chemistry Textbooks at $200 Each,it