Susan's Shellfish Shack increased the price of their shrimp sandwiches $10 \%$, and her total revenue increased $20 \%$.

Based on this information, what can we conclude about shrimp sandwiches?

Choose 1 answer:
(A) Consumers consider shrimp sandwiches luxuries.
(B) Consumers consider shrimp sandwiches necessities
(c) Consumers have an infinite elasticity of demand for shrimp sandwiches.
(D) Consumers have a unit elastic demand for shrimp sandwiches.

Question

Susan's Shellfish Shack increased the price of their shrimp sandwiches $10 \%$, and her total revenue increased $20 \%$.

Based on this information, what can we conclude about shrimp sandwiches?

Choose 1 answer:
(A) Consumers consider shrimp sandwiches luxuries.
(B) Consumers consider shrimp sandwiches necessities
(c) Consumers have an infinite elasticity of demand for shrimp sandwiches.
(D) Consumers have a unit elastic demand for shrimp sandwiches.

Accepted Answer

∻Solution∻ ‖ a ⋮ Given Information: Susan's Shellfish Shack increased the price of their shrimp sandwiches by $10\%$, and her total revenue increased by $20\%$. ‖ ‖ b ⋮ Price Elasticity of Demand: The price elasticity of demand (PED) measures the responsiveness of quantity demanded to a change in price. It is calculated as: $$ \text{PED} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}} $$ ‖ ‖ c ⋮ Interpretation: Since total revenue increased when the price increased, the demand for shrimp sandwiches must be inelastic. This is because, with inelastic demand, the percentage change in quantity demanded is less than the percentage change in price, leading to an increase in total revenue when the price rises. ‖ ‖ d ⋮ Conclusion: Consumers have an inelastic demand for shrimp sandwiches. This means that the quantity demanded does not decrease significantly when the price increases. ‖ ∻Answer∻ ⚹ (B) Consumers consider shrimp sandwiches necessities ⚹ ∻Key Concept∻ ⚹ Price Elasticity of Demand ⚹ ∻Explanation∻ ⚹ When the price of a good increases and total revenue also increases, it indicates that the demand for the good is inelastic. This means that consumers do not significantly reduce their quantity demanded in response to a price increase, often because the good is considered a necessity. ⚹◊What is the formula for calculating price elasticity of demand in this scenario⍭ Generate me a similar question◊

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