The relationship between elasticity of demand and total revenue can be a helpful shortcut, particularly if your professor likes to give multiple-choice exams. For each of the following examples, calculate how much money each consumer spends at the low price and at the high price, and decide whether the right answer for a question asking for the price elasticity of demand on a multiple-choice exam would be
(a) -2.33,
(b) -1.17,
(c) -1.00, or
(d) -0.56.
Remember, if the consumer spends more money at the lower price, demand must be elastic.
a. When the price of a movie ticket rises from $6 to $8 for senior citizens, Gary (a senior citizen) decides to go to the movies every other day (15 times per month) instead of every day (30 times per month).
b. When the price of a large specialty coffee drink rises from $3 to $4, Martha reduces her weekly consumption from 7 to 5.
c. When PX = $10.00, QDX = 30. When PX = $7.50, QDX = 40.