Table of contents

0. Basic Principles of Economics1h 5m
1. Reading and Understanding Graphs59m
2. Introductory Economic Models1h 10m
3. The Market Forces of Supply and Demand2h 26m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Floors3h 45m
6. Introduction to Taxes and Subsidies1h 46m
7. Externalities1h 12m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. The Costs of Production2h 35m
11. Perfect Competition2h 23m
12. Monopoly2h 13m
13. Monopolistic Competition1h 9m
14. Oligopoly1h 26m
15. Markets for the Factors of Production1h 26m
16. Income Inequality and Poverty35m
17. Asymmetric Information, Voting, and Public Choice39m
18. Consumer Choice and Behavioral Economics1h 16m

4. Elasticity

Total Revenue Test

Microeconomics

4. Elasticity

Total Revenue Test

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Multiple Choice

A price change causes the quantity demanded of a good to decrease by 20 percent, while the total revenue increased by 10 percent. The demand curve is:

Elastic

Unit-Elastic

Inelastic

Perfectly Elastic

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Verified step by step guidance

Understand the relationship between price elasticity of demand and total revenue. When demand is inelastic, a price increase leads to an increase in total revenue.

Recall that price elasticity of demand (PED) is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Given that the quantity demanded decreases by 20%, and total revenue increases by 10%, infer that the percentage change in price must be positive.

Since total revenue increases when quantity demanded decreases, this indicates that the demand is inelastic. Inelastic demand means that the percentage change in quantity demanded is less than the percentage change in price.

Conclude that the demand curve is inelastic because the increase in total revenue despite a decrease in quantity demanded suggests that the price effect dominates the quantity effect.