micro

[divya9]

The price of tickets falls by 10%. The elasticity of demand is -1.73. What is the percentage change in revenue?

[duck]

Hi divya.. :)

First find out % change in quantity demanded
(elasticity of demand = % change in quantity demanded / % change in price)

and then find the % change in revenue = % change in quantity demanded + % change in price

[divya9]

so,
% change in quantity demanded= 10*1.73=17.3
hence,
change in revenue = -10 + 17.3 = 7.3 ?
This answer doesn't match the solution. :-(
May be the solution is wrong then.

[duck]

Hi Divya.. :)
We were making mistake.
Sorry, we do not calculate % change like this.

First, find out % change in quantity demanded which is 17.3% (this is correct)
Now, just assume some initial value of P and Q and then, find new price(P') and new quantity(Q')
[by looking at the % change in price and % change in quantity demanded]
Find initial Revenue= PQ
Then, find New revenue = P'Q'
And then, finally you will get the % change is Revenue = {(P'Q' - PQ)*100}/PQ

[divya9]

Hi,
Yeah. Let P=10, q=10 So the initial revenue is 100
accordingly, p'=9   q'  = 11.73 so new revenue =11.73*9= 105.57
so % change in revenue= 5.57% which is right!
Yay! :-)
Thanks!