Multiple Choice
Refer to Table 5-1. Which of the following statements is consistent with the elasticities given in Table 5-1?
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4. Elasticity
Price Elasticity of Demand on a Graph
Multiple Choice
Which of the following statements is inconsistent with an elastic demand curve?
A
A small decrease in price leads to a large increase in quantity demanded.
B
Consumers are highly responsive to price changes.
C
Total revenue decreases when price decreases.
D
The demand curve is relatively flat.
Verified step by step guidance1
Step 1: Understand the concept of price elasticity of demand, which measures how much the quantity demanded of a good responds to a change in its price. If demand is elastic, consumers are very responsive to price changes.
Step 2: Recall that for an elastic demand curve, a small decrease in price leads to a proportionally larger increase in quantity demanded. This means total revenue (Price × Quantity) increases when price decreases.
Step 3: Analyze the statement 'Total revenue decreases when price decreases.' For an elastic demand curve, this statement is inconsistent because total revenue should increase, not decrease, when price falls.
Step 4: Note that an elastic demand curve is typically relatively flat, reflecting high responsiveness of quantity demanded to price changes.
Step 5: Conclude that the inconsistent statement with an elastic demand curve is the one about total revenue decreasing when price decreases, as it contradicts the fundamental property of elastic demand.
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