ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Suppose that when paper plates sell for $2 per package, the demand is 5 million. Which of the following is the total revenue earned?
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$10 million
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$3 million
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$7 million
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$1 million
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Explanation:
Detailed explanation-1: -The elasticity of demand between the prices of $5 and $2 in the adult market is inelastic or 0.33 which is less than one. Therefore, the demand is inelastic in the adult market.
Detailed explanation-2: -In case of perfectly inelastic demand the change in price will have no effect on the quantity demanded.
Detailed explanation-3: -If demand for a product is price elastic and the price increases, total revenue will decrease. If demand for a product is price inelastic and the price decreases, total revenue will decrease.
Detailed explanation-4: -Elasticities can be usefully divided into five broad categories: perfectly elastic, elastic, perfectly inelastic, inelastic, and unitary.
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