Chapter 47, Problem 1CYU

a)

To determine

Whether the demand is elastic, inelastic, or unit elastic where total revenue decreases when price increases.

Explanation of Solution

As consumers are responsive to price, therefore, the demand is elastic where total revenue decreases when price increases. There is a fact that when the price increases the total revenue decreases as the quantity effect is higher than the price effect.

Economics Concept Introduction

Introduction: Elasticity of demand represents the measure of the sensitivity of demand to the price that shows how a change in price or supply of goods affects the quantity demanded.

b)

To determine

Whether the demand is elastic, inelastic, or unit elastic when the price falls, the additional revenue generated by the increase in quantity sold is offset by the revenue lost from the fall in the price received per unit.

Explanation of Solution

The demand would be unit-elastic where additional revenue is generated by the increase in quantity sold offset by the revenue lost from the fall in the price received per unit because the loss in revenue with the fall in price is equal to the revenue gained by more sales.

Economics Concept Introduction

Introduction: Elasticity of demand represents the measure of the sensitivity of demand to the price that shows how a change in price or supply of goods affects the quantity demanded.

c)

To determine

Whether the demand is elastic, inelastic, or unit elastic where total revenue decreases when output increases.

Explanation of Solution

There would be inelastic demand where total revenue decreases when output increases because consumers are not responsive to any change in price.

Economics Concept Introduction

Introduction: Elasticity of demand represents the measure of the sensitivity of demand to the price that shows how a change in price or supply of goods affects the quantity demanded.

d)

To determine

Whether the demand is elastic, inelastic, or unit elastic when producers find an increase in total revenue by working together to reduce industry output.

Explanation of Solution

The demand is inelastic when producers find an increase in total revenue by working together to reduce industrial output because consumers are likely unresponsive to any change in price.

Economics Concept Introduction

Introduction: Elasticity of demand represents the measure of the sensitivity of demand to the price that shows how a change in price or supply of goods affects the quantity demanded.