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Chapter 19: Q. 8 (page 434)

Suppose that over a range of prices, the price elasticity of demand varies from 15.0 to 2.5. Over another range of prices, the price elasticity of demand varies from 1.5 to 0.75. What can you say about total revenues and the total revenue curve over these two ranges of the demand curve as price falls?

Short Answer

Expert verified

Decline in the price would tend to raise the revenue in terms of elastic demand whereas reduction in price would lead to reduce total revenue.

Step by step solution

01

Introduction

When the price elasticity of demand ranges between 15.0and 2.5, total revenue can be raised by lowering the price. Producers can increase their profits by lowering the price in the case of elastic demand.

If the price elasticity of demand fluctuates from 1.5to 0.75, increasing the price will maximize overall income. The overall revenue curve will climb as the price rises. Along the whole revenue curve, there will be an upward trend.

02

Explanation

In terms of elastic demand, a decrease in price would tend to increase revenue, whereas a decrease in price would result in a decrease in total income.

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Most popular questions from this chapter

Suppose that the cross price elasticity of demand between eggs and bacon is -0.5. What would you expect to happen to purchases of bacon if the price of eggs rises by 10 percent?

The diagram below depicts the demand curve for "miniburgers" in a nationwide fast-food market. Use the information in this diagram to answer the questions that follow.

Quantity (mini burgers per day)

a. What is the price elasticity of demand along with the range of the demand curve between a price of \(0.20per miniburger and a price of role="math" localid="1651796932841" \)0.40per miniburger? Is demand elastic or inelastic over this range?

b. What is the price elasticity of demand along with the range of the demand curve between a price of \(0.80 per miniburger and a price of \)1.20 per miniburger? Is demand elastic or inelastic over this range?

c. What is the price elasticity of demand along with the range of the demand curve between a price of \(1.60 per miniburger and a price of \)1.80 per m ? Is demand elastic or inelastic over this range?

Assume that the income elasticity of demand for hot dogs is -1.25 and that the income elasticity of demand for lobster is 1.25. Based on the fact that the measure for hot dogs is negative while that for lobster is positive, are these normal or inferior goods?

Why does it make sense that Fryer found a positive percentage change in the number of learning tasks supplied in response to a rise in the monetary reward for performing them?

At a price of \(25,000, producers of midsized automobiles are willing to manufacture and sell 75,000cars per month. At a price of \)35,000, they are willing to produce and sell 125,000a month. Using the same type of calculation method used to compute the price elasticity of demand, what is the price elasticity of supply? Is supply elastic, unit-elastic, or inelastic?
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