Consider the market for a new CD, where the price is initially \( \$ 12.00 \) and 12 thousand copies are sold, as indicated in the figure at point \( A \). The music company is considering lowering the price to \( \$ 10.00 \), at which price 20 thousand copies would be sold. What is total revenue at the initial price (at point \( A \) )? Revenue is initially \( \$ 144 \) thousand. What would total revenue be at the lower price (at point \( B \) )? Revenue would be \( \$ 200 \) thousand. Given this change in total revenue, is demand between these prices elastic or inelastic? Demand range of prices) is
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Demand is considered elastic in this range of prices. When the price decreased from $12.00 to $10.00, total revenue increased from $144,000 to $200,000. This indicates that the percentage change in quantity demanded is greater than the percentage change in price, causing total revenue to rise when the price is lowered. Elastic demand typically results in higher revenue when prices fall, reflecting a strong responsiveness of consumers to price changes. To further amplify your understanding, think about how artists or companies use this knowledge strategically. By pricing their albums lower during a release to attract more buyers, they can expand their listener base and potentially benefit from increased sales of merchandise or concert tickets later on. Additionally, tracking these shifts helps in making informed decisions for future releases, allowing companies to fine-tune their pricing strategies effectively!