Answer in Microeconomics for Rooshan #159291
When a flower shop raised the price of a floral arrangement from $20 to $28, the number of the arrangements sold decreased from 30 a week to 20. What is the price elasticity of demand for the flowers in this case?
Price elasticity of demand (PED) is the percentage change in quantity demanded of a commodity due to certain percentage change in its price.
PED = %change in quantity demand/%change in price
Mid point of quantity = “frac{(Q1 + Q2)} {2}=frac{ (30 + 20)} {2} = 25”
Mid point of price =“frac{(P1 + P2)} {2}= frac{(20 +28)} {2} = 24”
%change in quantity = “frac{(Q2 – Q1)} {Mid point quantity}= frac{(20 – 30)} {25} = -0.4”
%change in quantity = “frac{(P2 – P1)} {Mid point price}= frac{(28 – 20)} {24} = 0.3”
Price Elasticity of Demand =“frac{ -0.4} {0.3} = 1.3”
Total Revenue (TR) = Total Quantity “u00d7” Price per unitTotalQuantity“u00d7” Priceperunit
Initial TR = “Q_1u00d7P_1 = 30 u00d720 = 600”
Present TR = “Q_2u00d7P_2 = 20 u00d7 28 = 560”
The total revenue of the firm dropped from $600 to $560
