When the local pizza parlor prices pizzas at $12 each, it generally sells 7000 pizzas per month. If it lowers the price to $10, sales increase to 9000 pizzas per month. Given this information, we know that the price elasticity of demand for pizza is about 1.38, and an increase in price from $10 to $12 results in a decrease in total revenue. 0.72, and an increase in price from $10 to $12 results in an increase in total revenue. 0.72, and an increase in price from $10 to $12 results in a decrease in total revenue. 1.38, and an increase in price from $10 to $12 results in an increase in total revenue.
When the local pizza parlor prices pizzas at $12 each, it generally sells 7000 pizzas per month. If it lowers the price to $10, sales increase to 9000 pizzas per month. Given this information, we know that the price elasticity of demand for pizza is about 1.38, and an increase in price from $10 to $12 results in a decrease in total revenue. 0.72, and an increase in price from $10 to $12 results in an increase in total revenue. 0.72, and an increase in price from $10 to $12 results in a decrease in total revenue. 1.38, and an increase in price from $10 to $12 results in an increase in total revenue.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![**Sample Question on Price Elasticity of Demand**
**Problem Description:**
When the local pizza parlor prices pizzas at $12 each, it generally sells 7000 pizzas per month. If it lowers the price to $10, sales increase to 9000 pizzas per month. Given this information, we know that the price elasticity of demand for pizza is about:
**Multiple Choice Options:**
1. **1.38, and an increase in price from $10 to $12 results in a decrease in total revenue.**
2. **0.72, and an increase in price from $10 to $12 results in an increase in total revenue.**
3. **0.72, and an increase in price from $10 to $12 results in a decrease in total revenue.**
4. **1.38, and an increase in price from $10 to $12 results in an increase in total revenue.**
**Explanation:**
In this problem, you are asked to determine the price elasticity of demand for pizzas and how changes in price affect total revenue. You can use the Price Elasticity of Demand formula to find the answer:
\[ \text{Price Elasticity of Demand (PED)} = \frac{\%\ \text{Change in Quantity Demanded}}{\%\ \text{Change in Price}} \]
Let's perform the calculations step by step:
1. **Find the % Change in Quantity Demanded:**
\[ \%\ \text{Change in Quantity Demanded} = \frac{\text{New Quantity} - \text{Old Quantity}}{\text{Old Quantity}} \times 100 \]
\[ \%\ \text{Change in Quantity Demanded} = \frac{9000 - 7000}{7000} \times 100 \]
\[ \%\ \text{Change in Quantity Demanded} = \frac{2000}{7000} \times 100 \]
\[ \%\ \text{Change in Quantity Demanded} \approx 28.57\% \]
2. **Find the % Change in Price:**
\[ \%\ \text{Change in Price} = \frac{\text{New Price} - \text{Old Price}}{\text{Old Price}} \times 100 \]
\[ \%\ \text{Change in Price} = \frac{10 - 12}{12} \times 100 \]
\[ \%\ \text{Change in Price} = \](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F62ca1c58-ac8a-4380-bd93-744ecdfbeb4a%2F9f87926a-7bba-427c-8ef1-505d00a3aaee%2Fs5874kp_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Sample Question on Price Elasticity of Demand**
**Problem Description:**
When the local pizza parlor prices pizzas at $12 each, it generally sells 7000 pizzas per month. If it lowers the price to $10, sales increase to 9000 pizzas per month. Given this information, we know that the price elasticity of demand for pizza is about:
**Multiple Choice Options:**
1. **1.38, and an increase in price from $10 to $12 results in a decrease in total revenue.**
2. **0.72, and an increase in price from $10 to $12 results in an increase in total revenue.**
3. **0.72, and an increase in price from $10 to $12 results in a decrease in total revenue.**
4. **1.38, and an increase in price from $10 to $12 results in an increase in total revenue.**
**Explanation:**
In this problem, you are asked to determine the price elasticity of demand for pizzas and how changes in price affect total revenue. You can use the Price Elasticity of Demand formula to find the answer:
\[ \text{Price Elasticity of Demand (PED)} = \frac{\%\ \text{Change in Quantity Demanded}}{\%\ \text{Change in Price}} \]
Let's perform the calculations step by step:
1. **Find the % Change in Quantity Demanded:**
\[ \%\ \text{Change in Quantity Demanded} = \frac{\text{New Quantity} - \text{Old Quantity}}{\text{Old Quantity}} \times 100 \]
\[ \%\ \text{Change in Quantity Demanded} = \frac{9000 - 7000}{7000} \times 100 \]
\[ \%\ \text{Change in Quantity Demanded} = \frac{2000}{7000} \times 100 \]
\[ \%\ \text{Change in Quantity Demanded} \approx 28.57\% \]
2. **Find the % Change in Price:**
\[ \%\ \text{Change in Price} = \frac{\text{New Price} - \text{Old Price}}{\text{Old Price}} \times 100 \]
\[ \%\ \text{Change in Price} = \frac{10 - 12}{12} \times 100 \]
\[ \%\ \text{Change in Price} = \
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