<h3>What is an demand?</h3>
An elastic demand or elastic supply is when the elasticity is greater than one, indicating a high responsiveness to changes in price. An inelastic demand or inelastic supply is when the elasticity is less than one, indicating low responsiveness to price changes. With that said:
a. Price of widgets = $8
Total revenue = P*Q = 8*12 = $96
Price = $7
Total revenue = 7*16 = $112
Fall in price leads to rise in total revenue, it means demand is elastic.
b. Price = $7 maximimes the total revenue. Total revenue when price = $7, total revenue = Price x quantity= $7 x 12 = $112.
c. When price is equal to $9, Demand is elastic. So there should be a decrease in price in order to increase total revenue.
d. Price elasticity of demand = ((96-112)/(112+96)/2)) ÷((8-7)/(8+7)/2)) = -2.14
Elastic demand
e. When price=$6, Quantity=18
When Price=$5, Quantity= 20
Price elasticity of demand = ((20-18)/(20+18)/2)) ÷ ((5-6)/(5+6)/2)) = - 0.58
Inelastic demand
f. Total revenue fall from $108 to $100 when price falls from $6 to $5.
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