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Chapter 19: Q. b - For Critical Thinking (page 419)

Would the estimated price elasticity of demand for movie tickets have been different if we had not used the average-values formula?? How?

Short Answer

Expert verified

Expected tickets sold rises to 300

Step by step solution

01

Given information

The given information are :

Estimate that the price elasticity of demand for tickets

02

Explanation 

A cinema charges £8 per ticket for evening screenings and sells an average of 250 tickets per night. They calculate the price elasticity of demand for tickets to be (-) 1.6.

Calculate the expected number of tickets sold if the ticket price is reduced to £7.

Answer:

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

Price change percentage = 12.5 percent

If Ped = (-) 1.6, ticket sales will increase by 1.6 x 12.5 percent = 20%.

20% of 250 equals 50 additional tickets.

The expected number of tickets sold has risen to 300.

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