Question

A rise in the price of a smoothie from​ $2 to​ $3 results in a decrease in the quantity of smoothies demanded from 220 million to 180 million a day and at​ today's price of a​ muffin, $1.50, the quantity of muffins demanded increases from 80 million to 100 million a day. 1. calculate the percentage change in the price of a smoothie and the percentage change in the quantity demanded of smoothies. ​hint: use the average price and average quantity to calculate the percentage changes. the price of a smoothie changes by nothing percent and the quantity demanded of smoothies changes by nothing percent.

Answer 1

Answer:

Average price from $2 to $3 = ($2 + $3)/2 = $2.5

average quantity demanded = (220m + 180m)/ 2 = 200million

At today price, average quantity = (80m + 100m ) / 2 = 90million

Percentage change in the price = ($2.5 - $1.5)/$2.5 = 40%

percentage change in the quantity demanded = (200m - 90m)/200 = 55%

Explanation:

there is 40% change in the price while the corresponding changes in quantity demanded stood at 55%. This means that the percentage change in the quantity is higher than the percentage change in the price.

Answer 2

Answer: C
The total revenue test tells us that when demand is inelastic, a rise in the price increases total revenue.The price elasticity of demand is 0.9, so the demand for CDs is inelastic.