1.4 Suppose that the demand for postage stamps is represented by the constant elasticity demand function, Q = Xpe

, where Q is the quantity demanded, X is a constant, p is the price of a stamp, and e = -1.6 is the elasticity of demand for stamps. If p = 5 initially, and a 5% rise in the price of a postage stamp reduces postal revenue by 11.1 billion rupees, calculate X.

How many stamps are demanded before and after the price increase? If consumer surplus falls by 18.5 billion rupees due to the price increase, calculate the size of the triangle corresponding to the lost consumer surplus (area B in Figure 5.2).