Reading 13: Elasticity - LOS b, (Part 2)～ Q1 black, class, price, 2008, demand

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1.For a linear demand curve, at the price where elasticity is -2.0, reducing prices will:

A)   increase total revenue and we are at the point of maximum total revenue.

B)   decrease total revenue and we are not at the point of maximum total revenue.

C)   decrease total revenue and we are at the point of maximum revenue.

D)   increase total revenue and we are not at the point of maximum total revenue.

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答案和详解如下：

1.For a linear demand curve, at the price where elasticity is -2.0, reducing prices will:

A)   increase total revenue and we are at the point of maximum total revenue.

B)   decrease total revenue and we are not at the point of maximum total revenue.

C)   decrease total revenue and we are at the point of maximum revenue.

D)   increase total revenue and we are not at the point of maximum total revenue.

The correct answer was D)

If the price elasticity of demand is -2.0, this indicates that the percentage change in quantity demanded is twice the percentage change in price. Thus, a decrease in price will be more than offset by the increase in quantity, and total revenue will increase. We are not at the point of maximum total revenue which is where elasticity is -1.0—the point of unit elastic demand.

 

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