Asked by Cecilee Humphries on Jul 07, 2024
Verified
When the price of tea decreases 7%, quantity demanded increases 12%. The price elasticity of demand for tea is ________ and total revenue from tea sales will ________.
A) inelastic; increase
B) inelastic; decrease
C) elastic; increase
D) elastic; decrease
Total Revenue
The total amount of money received by a company from sales of goods or services before any expenses are subtracted.
Price Elasticity
A measure of how much the quantity demanded or supplied of a good changes in response to a change in its price.
Tea Sales
This refers to the commercial activity of buying and selling tea in various forms and quantities.
- Perceive the relationship that exists between demand elasticity and the adjustments in both price and quantity demanded.
- Recognize how price elasticity affects total revenue generation.
Verified Answer
MB
Myranda BurtonJul 07, 2024
Final Answer :
C
Explanation :
The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is |12% / -7%| = 1.71, which is greater than 1, indicating demand is elastic. When demand is elastic, a decrease in price leads to an increase in total revenue.
Learning Objectives
- Perceive the relationship that exists between demand elasticity and the adjustments in both price and quantity demanded.
- Recognize how price elasticity affects total revenue generation.
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