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Suppose the price elasticity of demand for your economics textbook is -1. If the publisher raises the price by 5 percent,
a) revenues will rise 5 percent
b) quantity demanded will rise 5 percent
c) total revenues will not change
d) revenues will fall
e) revenues will fall 5 percent
e) revenues will fall 5 percent
E = ?Q% / ?P%
?Q% / ?P% = -1
?P% = +5%
?Q% = -1 * 5 = -5%
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It’s “E”……..
Elasticity of Demand = Percentage change in quantity/ Percentage change in price
-1 = Percentage change in quantity / +5%
Therefore, Percentage change in quantity= -5%.
Thus, revenues will fall by 5%………………