Question 4

a) Percentage change in quantity demanded for D1

= (Q2-Q1) / (Q1+Q2 / 2) * 100%
= (300-200) / (200+300 / 2) * 100%
= 100 / 250 * 100%
= 40%

Percentage change in price for D1

= (P2-P1) / (P1+P2 / 2) * 100%
= (2.50-3.00) / (3.00+2.50 / 2) * 100%
= - 0.5 / 2.75 * 100%
= - 18.18%

Price elasticity of demand for D1

= percentage change in quantity demanded for D1 / percentage change in price for D1
= 40% / -18.18%
= - 2.2

Percentage change in quantity demanded for D2

= (Q2-Q1) / (Q1+Q2 / 2) * 100%
= (225-200) / (200+225 / 2) * 100%
= 25 / 212.5 * 100%
= 11.76%

Percentage change in price for D2

= (P2-P1) / (P1+P2 / 2) * 100%
= (2.50-3.00) / (3.00+2.50 / 2) * 100%
= - 0.5 / 2.75 * 100%
= - 18.18%

Price elasticity of demand for D2

= percentage change in quantity demanded for D2 / percentage change in price for D2
= 11.76% / -18.18%
= - 0.65%

The curve D1 is more elastic than D2 because the price elasticity of demand is 2.2 when
compared to the price elasticity of demand for D2, which is only 0.65.
b) Her initial revenue
= $3 * 200
= $600

When the demand curve is D1, the total revenue will be

= $2.5 * 300
= $750

Hence, her total revenue will increase $150, which is from $600 to $750 if the demand
curve is D1.

When the demand curve is D2, the total revenue will be

= $2.5 * 225
= $562.5

Hence, her total revenue will decrease $37.5, which is from $600 to $562.5 if the demand
curve is D2.