Question

For each of the following situations, state whether total revenue received by the seller increases, decreases, or does not change.

a. If price elasticity of demand is -1.00 and price increases, total revenue.
b. If price elasticity of demand is -0.02 and price increases, total revenue
c. If price elasticity of demand is 5.00 and price increases, total revenue
d. If price elasticity of demand is-0.131 and price decreases, total revenue
e. If price elasticity of demand is -3.33 and price decreases, total revenue

Answer 1

doesn't change

increases

decreases

decreases

increase

Step-by-step explanation:

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.

Price elasticity of demand = percentage change in quantity demanded / percentage change in price

If the absolute value of price elasticity is greater than one, it means demand is elastic. Elastic demand means that quantity demanded is sensitive to price changes.

Demand is inelastic if a small change in price has little or no effect on quantity demanded. The absolute value of elasticity would be less than one

Demand is unit elastic if a small change in price has an equal and proportionate effect on quantity demanded.

a. Demand is unit elastic and if price increases, quantity demanded would change by the same amount and total revenue would remain the same

b. Demand is inelastic. If prices increases, there would be little or no change in quantity demanded and revenue would increase

c. Demand is elastic. Increase in price would lead to a reduction in quantity demanded and total revenue would fall

Demand is inelastic, if prices are decreased, there would be little or no change in quantity demanded and revenue would fall

Demand is elastic. A decrease in price would increase the quantity demanded and total revenue would rise