A newspaper story on the effect of higher milk prices on the market for ice cream contained the following: "as a result (of the increase in milk prices), retail prices for ice cream are up 4 percent from last year... and ice cream consumption is down 3 percent." Given this information, compute the price elasticity of demand for ice cream. Will the revenue received by ice cream suppliers have increased or decreased following the price increase? briefly explain.

Question

economyst · Answer

Do a little research and then take a shot. what do you think.
Hint: price elasticity is (%change Q)/(%change P) -- you are given both.

Hint 2: Pre-price change Revenue received is P*Q. Adjust P and Q accordingly. Does total revenue go up or down?

zdcv · Answer

.75