Elasticity is a fundamental concept in economics that measures the responsiveness of the quantity demanded or supplied of a good to changes. Show your workings. a)A study fin ds that when the price of tea increases by 15%, the quantity demanded of coffee increases by 10%. Calculate the cross-price elasticity of demand between tea and coffee with interpretation.  b) A local movie theater chain is considering raising ticket prices. Currently, tickets are priced at RMIO, and they sell 1 ,000 tickets per week. After increasing the price to RMI 2, they observed that they now sell 900 tickets per week. Calculate the price elasticity of demand for movie tickets. c) Based on question (b), advise if they should increase or decrease the price in order to generate more total revenue.

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Elasticity of Demand and Supply

The elasticity of demand and supply are two important concepts of microeconomics. The elasticity of demand measures the responsiveness of consumers’ demands to the price change, changes in income of consumers, and changes in the price of the related goods. Similarly, the elasticity of supply refers to the proportionate change in the quantity supplied due to the proportionate change in the price. In other words, it can be said that elasticity of supply measures how the quantity of supply changes when the price changes of that particular product.