Elasticity and Revenues Answer the questions on this worksheet in a Word Document and submit as an assignment. Objective: to demonstrate understanding of price elasticity of demand. Price elasticity of demand describes our relationship with goods and services in the marketplace (regarding changes in price). Elasticity... It's Elastic! In this exercise you will consider a number of different aspects of price elasticity of demand. You will use the questions that follow to demonstrate your level of understanding of price elasticity and your ability to calculate elasticity values. Questions Answers A new electric car has a price of E28,000. In a certain market, the manufacturer sells 2 million of these cars each year. As the production technology improves, the price of the car falls to E26,000. As a result, sales of the car increase to 2.3 million annually. 1. Write the equation and then use it to 1 . calculate the price elasticity of demand for this car. (show all your workings) 2. Is the demand for the car price elastic, 2. inelastic, or unit elastic? Please explain your response. 3. What will be the resulting impact on the 3. total revenue for this car producer given the change in price? Please explain using elasticity concept and a calculation for your justification.4. Identify one change in the condition of the marketplace that might result in a decrease in the price elasticity of demand for this car in the long run. PED and total revenue All producers want to know what will happen to their total revenue when they make a decision about pricing. Help the following businesses determine and understand the reason for the impact on total revenue from sales in each of the scenarios. Then, where the question asks "why," offer a suggestion, with consideration for the determinants of price elasticity of demand, for why consumers might react the way they do. Example: Total revenue will... Increase The local utility company increases the price Why? Since PED = 0.2 the 15% increase of electrical consumption (price per in price will lead to a 3% decrease in kilowatt/hour) by 15%. The price elasticity of quantity demanded indicating that there are demand (PED) for electricity is 0.2 few if any close substitutes for the product. 1. A local steak house decides to increase Total revenue will... prices on all menu items by 3%. The Why? price elasticity of demand for their menu items is 1.2. 2. An electronics retailer decides to lower Total revenue will... the price on all MP3 players by 5%. The Why? price elasticity of demand for MP3 players is 1.0. 3. A local ice skating rink decides to raise Total revenue will... the price of public skating by 5%. The Why? price elasticity of demand for ice skating s 1.3. 4. A gas station decides to increase the Total revenue will... price of a gallon of gasoline by $0.3. The Why? price elasticity of demand is 0.2