4/ Suppose we find that the price elasticity of demand for a product is 3.5 when
ID: 1113979 • Letter: 4
Question
4/ Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded: A. increased by 7 percent B. decreased by 7 percent. C. decreased by 9 percent. D. decreased by 1.75 percent. 5/ Which of the following statements is not correct? A. If the relative change in price is greater than the relative change in the quantity demanded associated with it, demand is inelastic. B. In the range of prices in which demand is elastic, total revenue will diminish as price decreases nge where the elasticity coefficient is unity. D. Demand tends to be elastic at high prices and inelastic at low prices. 6/ If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is S6, then: A. the demand for the product is elastic in the $6-$5 price range. B. the demand for the product must have increased. C. elasticity of demand is 0.74 D. the demand for the product is inelastic in the $6-$5 price range.Explanation / Answer
Answer.)
Q4.) B.) Decreased by 7 percent
Remember that law of demand reflects the negative relationship between price and quantity demanded, ceteris paribus.
Elasticity = % chnage in quantity demanded / % change in price
% change in quantity demanded = Elasticity x % change in price = (-3.5) x (2) = -7%
Q5.) B.) In the range of prices in which demand is elastic, total revenue will diminish as price decreases.
According to total revenue method of elasticity, in case of elastic demand, changes in price and total revenue move in opposite directions. which means if total revenue increases when price decreases in case of elastic demand
Q6.) A.) The demand for the product is elastic in the $6 - $5 price range.
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