Suppose that when the price of ginger ale is $2 per bottle,firms can sell 4 million bottles.When the price of ginger ale is $3 per bottle,firms can sell 2 million bottles.Which of the following statements is true?
A)The demand for ginger ale is income inelastic,so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
B)The demand for ginger ale is income elastic,so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
C)The demand for ginger ale is price inelastic,so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
D)The demand for ginger ale is price elastic,so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.

Question

Quizplus · Accepted Answer

The fact that the quantity demanded of ginger ale decreases from 4 million bottles to 2 million bottles as the price increases from $2 to $3 per bottle indicates that the demand for ginger ale is price elastic. Therefore, an increase in the price of ginger ale will decrease the total revenue of ginger ale producers. This is because the increase in revenue from selling each bottle at a higher price is more than offset by the decrease in the number of bottles sold.

Suppose That When the Price of Ginger Ale Is $2