AP® Microeconomics · Free response

Elasticity from a demand schedule: price elasticity, the total revenue test and substitutes

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Short free-response question · four-function calculator · 5 points · about 12 minutes

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The question

Name: ______________________   Date: ____________   Elasticity from a demand schedule: price elasticity, the total revenue test and substitutes (5 points)

Ridgeway Pottery, an invented studio, sells handmade mugs. The table shows the number of mugs buyers demand per month at four prices.

Data

Demand for Ridgeway mugs

Mugs demanded per month at each price (invented data for practice)
PriceQuantity demanded
$10100
$8150
$6180
$4200

  1. (A) Calculate the price elasticity of demand when the price falls from $10 to $8, using the starting values. Show your work. [2 points]

  2. (B) Identify what happens to Ridgeway's total revenue when the price falls from $10 to $8, and state whether this is consistent with your answer to part A. [1 point]

  3. (C) Ridgeway considers cutting the price from $6 to $4. Using the total revenue test, explain whether demand is elastic or inelastic in this range. [1 point]

  4. (D) A new studio opens in the same town and sells handmade mugs much like Ridgeway's. Explain how this is likely to affect the price elasticity of demand for Ridgeway's mugs. [1 point]