Question

ECO 102 Week 1 Homework Word Deanne Drayton Tell me what you want to do Select Font Pg. 137 4. How would the following changes in price affect total revenue? This is, would total revenue increase, decrease, or remain unchanged? a. Price falls and demand is elastic. b. Price rises and demand is elastic. c. Price rises and supply is elastic. d. Price rises and demand is inelastic. e. Price rises and demand is inelastic. f. Price falls and demand is elastic. g. Price falls and demand is of unit elasticity 13 PM 1/212019 rch

Answer 1

Solution

a.Price falls and demand is elastic - Since it is mentioned as elastic,so consider the elasticity as more than 1.So,change in quantity demanded is more than the change in the price.So,the revenue increases

b.Price rises and demand is elastic - The revenue falls as the change in quantity demanded is more than the change in price

c.Price rises and supply is elastic - Price elasticity of supply show the relationship between the change in quantity supplied and change in price.So,when the former is greater than the latter,it results in the ratio to become more than 1 i.e., PES>1.So,revenue increases.

d.Price rises and supply is in-elastic - Revenue decreases.

e.Price rises and demand is elastic - So,the change in quantity demanded is more than the change in the price.So,revenue decreases.

f.Price rises and demand is in-elastic - So,the change in quantity demanded is less than the change in the price.So,revenue increases.

g.Price falls and demand is of unit-elasticity - Here the change in the quantity demanded is of the same magnitude to that of the change in the price.So,the revenue remains constant.

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