The nation's largest cable TV company tested the effect of a price increase for premium sports channels. It increased prices 10% and found that the number of customers decreased by more than 40%. This means:
A)the demand curve for the premium sports channels shifted to the right.
B)the supply curve for premium sports channels shifted to the left.
C)the demand for premium sports channels is elastic in this price range.
D)the demand for premium sports channels is inelastic in this price range.

Question

The nation's largest cable TV company tested the effect of a price increase for premium sports channels. It increased prices 10% and found that the number of customers decreased by more than 40%. This means:
A)​the demand curve for the premium sports channels shifted to the right.
B)​the supply curve for premium sports channels shifted to the left.
C)​the demand for premium sports channels is elastic in this price range.
D)​the demand for premium sports channels is inelastic in this price range.

Quizplus · Accepted Answer

The decrease of more than 40% in the number of customers indicates that customers are sensitive to the price increase, making the demand for premium sports channels elastic in this price range. Therefore, the correct choice is C. Option A is incorrect because the shift of the demand curve would have been towards the left, not to the right, in this scenario. Option B is incorrect because there is no indication that the supply of the premium sports channels changed. Option D is incorrect because the decrease in the number of customers by more than 40% suggests that the demand for premium sports channels is not inelastic.

The Nation's Largest Cable TV Company Tested the Effect of a Price