An economist estimates that the price elasticity of demand for disposable diapers is 0.67. This suggests that disposable diaper producers could:
A) advertise more to raise the price elasticity of demand.
B) encourage more parents to use cloth diapers.
C) lower the price of disposable diapers to raise more revenue.
D) raise the price of disposable diapers to raise more revenue.

Question

Quizplus · Accepted Answer

Since the Price Elasticity of Demand is 0.67, which is less than 1, it suggests that disposable diapers are a relatively inelastic good. This means that producers can raise the price of disposable diapers to increase their revenue, as the increase in price would result in a smaller decrease in demand. Alternatively, if the producers lower the price of the diapers, the increase in demand would not be significant enough to make up for the decrease in price, resulting in a decrease in revenue. Therefore, the best choice would be to raise the price of disposable diapers to raise more revenue.

An Economist Estimates That the Price Elasticity of Demand for Disposable