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Suppose the price elasticity of demand for contraceptive pills is 0.30. If there is an 10...

Suppose the price elasticity of demand for contraceptive pills is 0.30. If there is an 10 % increase in the price contraceptive pills, what is the effect on the demand for this medication and total revenues?

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Answer #1

Answer :

Quantity will be decrease by 3%.

Total revenue will increase.

Explanation :

Price elasticity of demand =percentage change in quantity demanded /percentage change in price

0.30=percentage change in quantity demanded /10

0.30*10=percentage change in quantity demanded

Percentage change in quantity demanded =6%.

When price increases quality demand decreases. So when price will be increase by 10%, quantity demanded will be decrease by 3%.

Here price elasticity of demand is less than 1 so it is inelastic. When demand is inelastic price and total revenue moves into same direction. So when price will increase, total revenue will also increase.

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