The demand for bottled water in a small town is as
follows:
a. Is this a straight-line demand curve? How do you
know?
b. Calculate the price elasticity of demand for bottled water for a price rise from $1.00 to $1.50.
Is demand elastic or inelastic for this price
change?
c. Calculate the price elasticity of demand for a
price rise from $2.50 to $3.00. Is demand elastic
or inelastic for this price change?
d. According to the chapter, demand should become
less and less elastic as we move downward and
rightward along a straight-line demand curve.
Use your answers in b. and c. to confirm this
relationship.
e. Create another column for total revenue on bottled water at each price.
f. According to the chapter, a rise in price should
increase total revenue on bottled water when
demand is inelastic, and decrease total revenue
when demand is elastic. Use your answers in b.
and c., and the new total revenue column you
created, to confirm this.