Table of contents

1. Introduction to Macroeconomics1h 57m
2. Introductory Economic Models59m
3. Supply and Demand3h 43m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Price Floors3h 40m
6. Introduction to Taxes1h 25m
7. Externalities1h 3m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. Introducing Economic Concepts49m
11. Gross Domestic Product (GDP) and Consumer Price Index (CPI)1h 37m
12. Unemployment and Inflation1h 15m
13. Productivity and Economic Growth1h 17m
14. The Financial System1h 37m
15. Income and Consumption52m
16. Deriving the Aggregate Expenditures Model1h 22m
17. Aggregate Demand and Aggregate Supply Analysis1h 18m
18. The Monetary System1h 1m
19. Monetary Policy1h 32m
20. Fiscal Policy1h 0m
21. Revisiting Inflation, Unemployment, and Policy46m
22. Balance of Payments30m
23. Exchange Rates1h 16m
24. Macroeconomic Schools of Thought40m
25. Dynamic AD/AS Model35m
26. Special Topics11m

4. Elasticity

Total Revenue Test

Macroeconomics

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 despite a decrease in quantity demanded, this indicates that the percentage change in price is greater than the percentage change in quantity demanded, suggesting inelastic demand.

Conclude that the demand is inelastic because the percentage change in price has a larger impact on total revenue than the percentage change in quantity demanded.