ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Consumer spending increases when it raises its price
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Total revenue increases when it lowers its price
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Consumer spending decreases when it lowers its price
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Total revenue doesn’t change when it raises its price
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Total revenue doesn’t change when it lowers its price
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Detailed explanation-1: -If a firm lowers its price and its total revenue increases as a result, this means that the percent change in quantity demanded is greater than the percent change in the price. Because the quantity demanded is changing more than the change in price, the demand curve is elastic.
Detailed explanation-2: -Elastic demand or supply curves indicate that the quantity demanded or supplied responds to price changes in a greater than proportional manner. An inelastic demand or supply curve is one where a given percentage change in price will cause a smaller percentage change in quantity demanded or supplied.
Detailed explanation-3: -If the number is equal to 1, elasticity of demand is unitary. In other words, quantity changes at the same rate as price.
Detailed explanation-4: -If demand is elastic at a given price level, then should a company cut its price, the percentage drop in price will result in an even larger percentage increase in the quantity sold-thus raising total revenue.