Income Elasticity. Ironside Industries, Inc., is a leading manufacturer of tufted carpeting under the Ironside brand. Demand for Ironside’s products is closely tied to the overall pace of building and remodeling activity and, therefore, is highly sensitive to changes in national income. The carpet manufacturing industry is highly competitive, so Ironside’s demand is also very price sensitive. During the past year, Ironside sold 15 million square yards (units) of carpeting at an average wholesale price of $7.75 per unit. This year, income per capita is expected to surge from $17,250 to $18,750 as the nation recovers from a steep recession. Without any price change, Ironside’s marketing director expects current-year sales to rise to 25 million units.

A. Calculate the implied income arc elasticity of demand.

B. Given the projected rise in income, the marketing director believes that the current volume of 15 million units could be maintained despite an increase in price of 50¢ per unit. On this basis, calculate the implied arc price elasticity of demand.

C. Holding all else equal, would a further increase in price result in higher or lower total revenue?