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if demand is unit elastic (the elasticity is 1), a 1% price cutincreases the quantity sold by 1% and total revenue does notchange. the question is: Assume the initial price is 1 and theinitial quantity demanded is 1, thus the total revenue is 1. Nowsuppose if the price increases by 1%, which is 1.01. Because of theunit elasticity, the quantity demanded will decrease by 1%, whichis 0.99. Therefore, the total revenue is 1.01*0.99=0.9999<1. Itseems that the total revenue does change! Can you figure it out whythe argument is wrong?

PS: You don't need any calculus to answer this question! A verysimple question!

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Mahe Alam
Mahe AlamLv10
28 Sep 2019

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Related questions

The following table shows price elasticity of demand for several produce items. Apples price elasticity = | -1.05 | = 1.05 Strawberries price elasticity = | -0.50 | = 0.50 Lettuce price elasticity = | -0.15 | = 0.15 Tomatoes price elasticity = | -0.11 | = 0.11

Question 1: Elastic and Inelastic Demand

Which product above has the most price-elastic demand and would therefore show the greatest increase in quantity demanded if the price were lowered?

Question 2: Total Revenues to the Supplier

For which product(s) would a 1% drop in price cause a decrease is total revenues for the farmers who grow and sell it, if their revenues were not subsidized as the quantity demanded increases? List all of them.

Question 3: Calculating elasticity

Corn is presently $4.00 per bushel. If we reduce the price by 2%, to $3.92 per bushel, we observe that the quantity demanded increases by 1.3%. What is the price elasticity of demand for corn? (Convert the percentages to decimals before computing to avoid confusion interpreting the answer, and express the answer as an absolute value, that is, as a positive number.)

1. Grand TV Manufacturer wants to increase the quantity of TVs it sells by 8%. If the price elasticity of demand is 4, the manufacturer must:

a. decrease price by 1.5%.

b. increase price by 1.5%.

c. increase price by 2.0%.

d. decrease price by 2.0%.

 

2. Suppose that an Italian ice cream firm is facing a linear demand curve and that the current price for the Italian ice cream is set at a point where the price elasticity is 0.7. If the firm decreases the product price,

Select one:

a. the demand becomes less inelastic, and total revenue increases.

b. the demand becomes more inelastic, and total revenue decreases.

c. the demand becomes more inelastic, and total revenue increases.

d. the demand becomes less inelastic, and total revenue decreases.

 

3. Suppose that in a month, the price of movie rentals decreases from $3.25 to $3. At the same time, the quantity of movie rentals demanded increases from 100 to 120. The price elasticity of demand for movie rentals (calculated using the midpoint formula) is:

a. elastic.

b. zero.

c. inelastic.

d. unitary elastic.

 

4. The price elasticity of demand for color printers is 1.6, and you would like to see the quantity demanded of color printers increase by 32%. Then the percentage change in price should be:

Select one:

a. 15%.

b. 25%.

c. 10%.

d. 20%.

 

5. The price of apple increases from $1 to $1.10. At the same time, the quantity of apples demanded decreases from 100 to 90. The price elasticity of demand for apples (calculated using the initial value formula) is:

a. 0.9.

b. 0.02.

c. 1.1.

d. 1.

Answer the following two questions from this Chapter.

1.A clothing producer has determined that the price elasticity of demand for its clothing is 3.2. Based on this information, what should it do to increase total revenue?

Select one:

a. decrease price

b. increase price

c. keep price the same

d. need more information to answer the question

2. If quantity demanded increases by 60% when price decreases by 40%, we can conclude that the good is:

Select one:

a. inelastic

b. elastic

c. normal

d. inferior

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