ECON 221

Econ 221 Spring 2023 4) PED and Total Revenue (6 points) A demand curve is shown on the graph below. Suppose the price has increased from $40 to $50. a. On the graph, label the two price points Price and their corresponding quantities $90 demanded. Outline and label the rectangles representing total revenue $80 before and after the price change. $70 b. Label and lightly shade in the rectangles $60 representing price effect and quantity effect as price changes from $40 to $50. $50 $40 c. Which effect appears larger on the graph? $30 $20 What does that tell us about the effect of $10 Demand the price increase on Total Revenue? Will revenue increase, decrease, or stay the 0 10 20 30 40 50 same, and how can we tell without calculating total revenue? Quantity d. What does that tell us about price elasticity of demand for this good? State whether demand is elastic, inelastic, or unit elastic, and how we know without calculating the elasticity. e. Calculate the Total Revenue before and after the price change (at P=$40 and P=$50). Verify that this confirms your answer from part (c)