1.

10 Whenpricefallsfrom$25to$20,demandis

1. inelastic, since total revenue decreases from $4,000 to $2,500.

2. inelastic, since total revenue increases from $2,500 to $4,000.
3. elastic, since total revenue increases from $2,500 to $4,000.
4. unit elastic, since total revenue does not change.

Scenario:

Suppose that when the college student’s income is $10,000 per year, the annual quantity
demanded of Patty’s Pizza is 50 and the annual quantity demanded of Sue’s Subs is 80. Suppose
that when the price of Patty’s Pizza increases from $8 to $10, the quantity demanded of Patty’s
Pizza decreases from 50 to 30, and the quantity demanded of Sue’s Subs increases from 80 to
100. Last, suppose also that when the student’s income increases to $12,000 per year, the annual
quantity demanded of Patty’s Pizza increases from 50 to 60.

1. What is the price elasticity of Patty’s Pizza?