Economics is a difficult science, which, however, allows people to see how their activities will affect the market, the prices and demand levels of certain products (Mankiw, 2008). The below-presented table demonstrates how demand for Barbeque Dinners and total revenue retrieved from their sale are interrelated. Moreover, the table manifests the elasticity of demand as the prominent factor in its marketing and defines the three types of elasticity.
The total revenue is calculated by the simple multiplication of the good price for the quantity of the goods sold (Mankiw, 2008). Thus, we can observe the change of total revenue with the change of price and demand levels. Accordingly, the total revenue gave the price equaling $4 and demand amounting to 100 dinners will be $400; if the price rises to $6 and demand fall to 80 dinners, the total revenue will amount to $480. However, the change of price and demand to $8 and 60 dinners respectively causes no change to the total revenue which remains at the level of $480, and only the further price increase to $10 accompanied with the falling of demand to 40 dinners returns the total revenue to its initial level of $400. After the price increases to $12, the demand falls to 20 dinners which bring only $240 of total revenue, while the further increase of price reduces total revenue to $14 only.
Based on these data, it is possible to calculate the elasticity coefficients for each price interval beginning from the relation of $4 and $6 prices. To calculate the elasticity coefficient, the midpoints formula should be used. Its essence lies in averaging and dividing the two endpoints of a segment in two to retrieve the middle points between them (Mankiw, 2008):
M = x + y /2, where M refers to the middle point, while X denotes the first endpoint of the segment, and Y denotes the second one. Accordingly, the calculations of the given intervals of prices will look as follows:
Accordingly, having the elasticity coefficient calculated and possessing the data of total revenue, prices, and demand levels, it is possible to find out the demand elasticity types observed under each price change (Mankiw, 2008). There are three types of demand elasticity. Elastic demand changes, either growth or falls, in accordance with the price modifications. Inelastic demand is the situation when the increase of price causes the growth of the total revenue even if the demand levels fall. Finally, unitary elasticity is the situation when changes in price levels and demand rates do not affect the total revenue (Mankiw, 2008).
Accordingly, price increase affects only the elastic and inelastic elasticity, while the unitary elasticity remains the same irrespective of the price changes. In elastic demand, a price increase or decrease causes the fall or rise of the total revenue, while in the inelastic demand only prices cause the total revenue growth, while demand rates might even fall.
References
Mankiw, G. (2008). Principles of Economics. South-Western College Pub; 5 edition.