The figure given below shows the demand curves for five products: A, B, C, D, and E.Figure 6.1

-If = -1.50 for a good, and price of the good decreases by 20 percent, then:
A)quantity demanded will decrease by 30 percent.
B)quantity demanded will increase by 30 percent.
C)total revenue will remain unchanged.
D)total revenue will decrease.
E)quantity demanded will increase by 3 percent.

Question

The figure given below shows the demand curves for five products: A, B, C, D, and E.Figure 6.1
 
-If = -1.50 for a good, and price of the good decreases by 20 percent, then: 
A)quantity demanded will decrease by 30 percent. 
B)quantity demanded will increase by 30 percent. 
C)total revenue will remain unchanged. 
D)total revenue will decrease. 
E)quantity demanded will increase by 3 percent.

Quizplus · Accepted Answer

According to the law of demand, when the price of a good decreases, the quantity demanded increases. The price elasticity of demand measures the responsiveness of buyers to a change in the price of the good. In this case, the elasticity of demand for the good is -1.50, which means that a 20% decrease in price will result in a 30% increase in quantity demanded (elastic response). Therefore, the correct answer is B. Total revenue will increase because the gain in revenue from the increase in quantity demanded will outweigh the loss in revenue from the decrease in price.

The Figure Given Below Shows the Demand Curves for Five