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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1. At point $$ A $$, the price is $$ \$12.00 $$ and 12 thousand copies are sold. Total revenue is calculated as
   $$
   \text{Revenue} = \text{Price} \times \text{Quantity} = 12 \times 12 = 144 \text{ (in thousand dollars)}.
   $$

2. At point $$ B $$, the price is $$ \$10.00 $$ and 20 thousand copies would be sold. Thus,
   $$
   \text{Revenue} = 10 \times 20 = 200 \text{ (in thousand dollars)}.
   $$

3. Since lowering the price from $$ \$12.00 $$ to $$ \$10.00 $$ increases total revenue from 144 thousand to 200 thousand dollars, the percentage increase in quantity sold more than offsets the percentage decrease in price.

4. This outcome implies that demand is elastic over this price range, because a decrease in price leads to a proportionally larger increase in quantity demanded, thereby increasing total revenue.
At the initial price of \$12.00, total revenue is \$144,000. At the lower price of \$10.00, total revenue increases to \$200,000. Since the increase in revenue despite the price decrease indicates that consumers are buying more when the price is lower, demand is elastic between these prices.

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