WAEC Economics 2017 Theory — Question 3

Model answer

(i) Total revenue before price increased = $450 x 800 = $360,000. Total revenue after price increased = $500 x 600 = $300,000. (ii) Change in total revenue = $360,000 - $300,000 = $60,000 (a decrease). (iii) The effect of the increase in price is a reduction of the total revenue by $60,000 (since demand is elastic, raising price reduces total revenue). (iv) Factors influencing price elasticity of demand: (a) Price of the commodity (b) Change in consumer's taste (other factors include availability of substitutes, proportion of income spent on the good, and necessity vs luxury).