Danny “dimes” donahue is a neighborhood’s 9-year-old entrepreneur. his most recent venture is selling homemade brownies that he bakes himself. at a price of $2.5 each, he sells 250. at a price of $2 each, he sells 300. instructions: round your answer to 1 decimal place. a. what is the elasticity of demand? . b. is demand elastic or inelastic over this price range? . c. if demand had the same elasticity for a price decline from $2 to $1.5 as it does for the decline from $2.5 to $2, would cutting the price from $2 to $1.5 increase or decrease danny’s total revenue? .

A) Price elasticity of demand (PED) = 1

B) the PED is unitary

C) Danny's total revenue will decrease to $562.50

Explanation:

A) the formula for calculating price elasticity of demand is:

PED = % change in quantity demanded / % change in price

PED = 20% / 20% = 1

B)  the PED is unitary, it means that for every 1% change in the price, the demand will inversely change in 1%

C) since Danny lowered its price 20% from $2.50 to $2, he sold 20% more brownies, but his total revenue fell from $625 to $600. If he lowers his price even more, this time 25% to $1.50, his total sales will increase to 375 brownies, but his total revenue will continue to fall to $562.50

d. highly elastic

Explanation:

Elasticity is a measure of the responsiveness of quantity demanded to a change in price. An elastic good for instance, will see its quantity demand drop if its price increases.

In the above scenario, when one gas station increases prices, less people demand their fuel. The reverse is true. This therefore means that the demand for both of their stations is highly elastic because them changing prices hugely affects the number of people that will come to patronise them.