Price Elasticity of Demand (Ed) Ignore the MINUS sign in the coefficient for Price Ed 1. When bicycles were $50, the quantity was 20/day, however, when the price rose to $60 the Quantity Demanded dropped to 15. Calculate coefficient: Cite Elasticity: Elastic What happens to TOTAL REVENUE: TR decreases Calculate coefficient: 2. When price drops from $1.00 to $.70, Quantity Demanded increased from 50 to 75 units. Cite Elasticity: Calculate coefficient: What happens to TOTAL REVENUE: 3. Price dropped from $0.70 to $0.60 and Quantity Demanded rose from 10 to 12 units. Cite Elasticity: (QD (NEW) -QD(OLD))/[(QD(NEW)+QD(OLD))/2] (P(NEW) -P(OLD)) /[(P(NEW)+P(OLD))/2] (15 – 20) / [(15 +20)/2] = -5/17.5 = -.286 = -1.57 (60 -50) / [(60 +50)/2] 10 / 55 .182 Calculate coefficient: What happens to TOTAL REVENUE: 4. Price rises from $1.50 to $2 and Quantity Demanded decreases from 1000 to 900 units. Cite Elasticity: What happens to TOTAL REVENUE: EXPLAIN: 5. When Cottonwood City Transit Authority raised bus fares, its total revenue increased, which shows that demand for travel is: ELASTIC/INELASTIC

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