-If price INCREASES from $60 to $80, an arrow representing the PRICE effect
A) will point upward.
B) will point downward.
C) will be longer than (and in opposite direction of) the arrow representing the quantity effect.
D) will be shorter than (and in the opposite direction of) the arrow representing the quantity effect.
E) both a and d

Question

-If price INCREASES from $60 to $80, an arrow representing the PRICE effect
A) will point upward. 
B) will point downward. 
C) will be longer than (and in opposite direction of) the arrow representing the quantity effect. 
D) will be shorter than (and in the opposite direction of) the arrow representing the quantity effect. 
E) both a and d

Quizplus · Accepted Answer

When the price increases from $60 to $80, the quantity demanded decreases from 300 to 240. This is represented by an arrow pointing to the left, which represents the quantity effect. According to the law of demand, as price increases, quantity demanded decreases.

At the same time, the price increase from $60 to $80 also leads to a decrease in total revenue (in this case, from $18,000 to $19,200). This is represented by an arrow pointing downward, which represents the price effect. According to the price effect, as price increases, total revenue decreases (if demand is elastic) or increases (if demand is inelastic).

Therefore, the correct answer is E, as the arrow representing the price effect will be pointing downward and shorter than the arrow representing the quantity effect, which is pointing to the left.

-If Price INCREASES from $60 to $80, an Arrow Representing