Chapter 46, Problem 3CYU

To determine

The percentage by which price can be reduce to sell 5000 tickets by using midpoint method.

Explanation of Solution

Given Information:

Price elasticity of demand 1

Price is $10

Current consumption level is 40000

Target level of consumption is 5000

Calculation:

  $\text{Price elasticity}=\frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}}$

  $\begin{array}{c}\text{Percentage change in quantity demanded}=\frac{\text{new value}-\text{previous value}}{\text{Average value}}\times 100\\ =\frac{5000-4000}{\frac{5000+4000}{2}}\times 100\\ =\frac{1000}{4500}\times 100\\ =22.22\%\end{array}$

Since, price elasticity is given and percentage change in quantity demanded is computed then percentage change in price will be calculated using following formula:

  $\begin{array}{c}\text{Price elasticity}=\frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}}\\ 1=\frac{22.22\%}{\%\text{ change in price}}\\ \text{\% change in price}=22.22\%\end{array}$

Therefore, price should be reduced by 22.22% to sell 5000 tickets.

Economics Concept Introduction

Demand and Supply: Demand refers to the curve that depicts the relationship between the quantity demand at given price whereas supply refers to the curve that depicts the relationship between the quantity that supplier is ready to sell at given price.