Figure 5-11
-Refer to Figure 5-11.A decrease in price from $20 to $10 leads to a
A)decrease in total revenue of $200,so the price elasticity of demand is greater than 1 in this price range.
B)decrease in total revenue of $200,so the price elasticity of demand is less than 1 in this price range.
C)decrease in total revenue of $120,so the price elasticity of demand is less than 1 in this price range.
D)decrease in total revenue of $120,so demand is elastic in this price range.

Question

Figure 5-11 
-Refer to Figure 5-11.A decrease in price from $20 to $10 leads to a
A)decrease in total revenue of $200,so the price elasticity of demand is greater than 1 in this price range. 
B)decrease in total revenue of $200,so the price elasticity of demand is less than 1 in this price range. 
C)decrease in total revenue of $120,so the price elasticity of demand is less than 1 in this price range. 
D)decrease in total revenue of $120,so demand is elastic in this price range.

Quizplus · Accepted Answer

A decrease in price from $20 to $10 causes an increase in quantity demanded from 6 units to 12 units. Therefore, the total revenue before the price change was 6 units x $20 = $120, and after the price change it is 12 units x $10 = $120. Since the change in price and total revenue have the same direction, demand is inelastic in this price range (price elasticity of demand is less than 1). The decrease in total revenue is $0. Therefore, the only choice that matches these observations is C.

Figure 5-11 -Refer to Figure 5-11.A Decrease in Price from $20 to from $20