Amazon currently sells 100 000 copies per year of an e-book at $14.99. The company estimates that customers would buy 174 000 copies of the same e-book at a price of $9.99. What is the effect on Price elasticity of Demand and Total
Price elasticity of demand (PED)= %change in Quantity Demanded/ %change in price
So, from the question we can see that the PED is elastic as there is a significant increase in demand for the e-book when price is reduced. To further check this we can use the information provided to get PED=74/-33.4=-2.21. If the PED (in absolute terms) is between 0 and 1, it is inelastic. If it is above 1 it is elastic, as is the case here. Total Revenue=Quantity x Price, so, the TR increases from $1,499,000 to $1,738,260.
PED is elastic, Total Revenue rises.
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