Question

An item is called "price elastic" if you drop the price and revenue goes up. Last week you sold 10 sodas for $2 each; this week you sold 30 sodas for $1 each. Is soda price elastic?

Answer 1

The price of the soda in this problem is elastic. It was stated in the problem that if you drop the price and the revenue goes up then it the price is elastic. You have to compare the revenue of the $2 soda with the revenue of the $1 soda.

$2 x 10 sodas = $20

$1 x 30 sodas = $30

In here, the revenue obviously went up even if the price was drop. Therefore, the price is elastic.