Ghose and Han (2014) found that the elasticity of demand for Google Play apps is negative 3.7. This elasticity applies to a small college town where approximately 1,000 apps per month are sold. If price rises by 10%: 1) What would be the effect on quantity demanded? The quantity demanded will decrease decrease increase by 37 percent.(Enter your response rounded to one decimal place.) 2) Would revenue rise or fall? Revenue would fall remain unchanged rise fall . 3) What is the percentage change in revenue? The change in revenue is 43.30 percent.(Enter your response rounded to two decimal places.)

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TomShelby TomShelby · Answer 1 · 2020-02-20T06:57:24+01:00

Answer:

1) The demand will decrease by 37% as a result of a 10% increase in price:

0.10 x -3.7 = -0.37 a ngevative impact in the maginitude of 37%

2) Revneue will fall

3) The decrease in revenues will be for 30.7%

Explanation:

Revenues Price x Quantity

P (1 + 0.1) Q (1 - 0.37) = (1.1)(0.63) = 0.693

we apply to the price the 10% increase

and we apply to the demand the 37% decrease in quantity

The revenue will fall to 0.693 = 69.3%

100 - 69.3 = 30.7%