Anna owns the Sweet Alps Chocolate store. She charges $10 per pound for her hand made chocolate. You, the economist, have calculated the elasticity of demand for chocolate in her town to be 2.5. If she wants to increase her total revenue, what advice will you give her and why? Use diagrams and economic terms to explain your answer.

Decrease her prices.

Explanation:

The elasticity of demand shows the change in quantity demanded as a result of a change in price.

In this case, if price decreases by 1%, quantity demanded for chocolate would increase by 2.5%.

If she wants to increase her revenue therefore, she should decrease the price.

For example:

If the demand was 10 chocolate bars a day, she would earn:

= 10 * 10

= $100 a day

If she decreased the price by 10%, price would be:

= 10 * ( 1 -10%)

= $9.00

Quantity demanded would be:

= 10 * (1 + 25%)

= 12.5 bars

Revenue would become:

= 12.5 * 9

= $112.50 which is more than the previous $100 she was making.

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know