Question

Ghose and Han​ (2014) found that the elasticity of demand for Google Play apps is negative 3.7. This elasticity applies to a small college town where approximately​ 1,000 apps per month are sold. If price rises by 10​%: 1) What would be the effect on quantity​ demanded? The quantity demanded will decrease decrease increase by 37 percent.(Enter your response rounded to one decimal​ place.) 2) Would revenue rise or​ fall? Revenue would fall remain unchanged rise fall . 3) What is the percentage change in​ revenue? The change in revenue is 43.30 percent.(Enter your response rounded to two decimal​ places.)

Answer 1

Answer:

1) The demand will decrease by 37% as a result of a 10% increase in price:

0.10 x -3.7 = -0.37 a ngevative impact in the maginitude of 37%

2) Revneue will fall

3) The decrease in revenues will be for 30.7%

Explanation:

Revenues Price x Quantity

P (1 + 0.1) Q (1 - 0.37) = (1.1)(0.63) = 0.693

we apply to the price the 10% increase

and we apply to the demand the 37% decrease in quantity

The revenue will fall to 0.693 = 69.3%

100 - 69.3 = 30.7%