True or False: A 10% reduction in price that leads to a 10% increase in the...

True or False: A 10% reduction in price that leads to a 10% increase in the amount purchased indicates a price elasticity of more than 1 (in absolute value).

True

False

True or False: A 10% reduction in price that leads to a 2% increase in total expenditures (or total revenue) indicates a price elasticity of more than 1 (in absolute value).

True

False

If the percentage change in price is less than the resultant percentage change in quantity demanded, demand is .

Solutions

Expert Solution

1.FALSE,beacause %change in quantity = % change in price = 1,And it is called Unitary.

%change in quantity > % change in price >1 is elastic,so here it is unitary because %change in quantity = % change in price

2.TRUE,

If elastic: The quantity effect outweighs the price effect, meaning if we decrease prices, the revenue gained from the more units sold will outweigh the revenue lost from the decrease in price.

If inelastic: The price effect outweighs the quantity effect, meaning if we increase prices, the revenue gained from the higher price will outweigh the revenue lost from less units sold.

3.When the percentage change in the quantity demanded is less than the percentage change in price, then demand is inelastic

Rahul Sunny answered 1 month ago

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