When demand is price elastic (elasticity greater than one), the percentage change in quantity demanded is greater than the percentage change in price. Consequently, a decrease in price leads to a proportionately larger increase in the quantity sold, which results in an increase in total consumer spending (total revenue). This demonstrates the inverse relationship between price and revenue in the elastic portion of the demand curve.
3962
If a 4% increase in price results in an 8% increase in the quantity supplied, how is the supply classified?
Price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. Here, 8% divided by 4% equals 2. Since the absolute value of the elasticity coefficient is greater than 1, the supply is considered price elastic, meaning quantity supplied is highly responsive to price changes.
3963
Given that 30,000 subscribers pay Rs 30/month and 20,000 subscribers pay Rs 40/month, at which price point is total revenue maximized for the cable provider?
Total Revenue (TR) is calculated as Price multiplied by Quantity. At Rs 30, TR = 30 * 30,000 = Rs 900,000. At Rs 40, TR = 40 * 20,000 = Rs 800,000. Since Rs 900,000 is greater than Rs 800,000, the firm earns higher revenue at the Rs 30 price point. This indicates that in the range between Rs 30 and Rs 40, the demand is elastic, so raising the price decreases total revenue.
3964
If demand is price inelastic, how will a shift in supply affect price compared to output?
When demand is price inelastic, consumers are less responsive to price changes. Consequently, if the supply curve shifts, the resulting change in price will be significantly larger than the change in the quantity traded, as consumers continue to purchase similar amounts despite price fluctuations.
3965
How is demand classified if a minor percentage increase in price leads to a significant reduction in the quantity demanded?
Price elasticity of demand measures the sensitivity of quantity demanded to price changes. When the percentage change in quantity demanded is greater than the percentage change in price, the demand is considered price elastic. This indicates that consumers are highly sensitive to price changes, and a small increase in price results in a proportionally larger decrease in the quantity purchased.
3966
What is the nature of demand if total revenue remains constant despite a change in the price of the product?
Total revenue is the product of price and quantity. If total revenue remains unchanged when price changes, it implies that the percentage change in price is exactly offset by an equal and opposite percentage change in quantity demanded. This specific relationship, where the elasticity coefficient equals exactly 1, is defined as unit price elasticity of demand.
3967
If the cross-price elasticity of demand between two products is negative, how are these goods classified?
Cross-price elasticity measures the responsiveness of the quantity demanded for one good to a change in the price of another. A negative value indicates that as the price of one good increases, the demand for the other decreases, which is the defining characteristic of complementary goods, such as printers and ink cartridges.
3968
Which area on a standard supply and demand diagram represents consumer surplus?
Consumer surplus measures the benefit consumers receive when they pay less for a good than the maximum amount they are willing to pay. On a graph, the demand curve represents the maximum willingness to pay for each unit. The area between the demand curve and the horizontal line representing the market price reflects the total savings or surplus enjoyed by all consumers who purchase the good at that price.
3969
Which statement accurately defines the economic concept of consumer surplus?
Consumer surplus is a measure of the welfare that consumers gain from a market transaction. It is calculated as the difference between the maximum price a consumer is willing to pay for a specific quantity of a good and the actual market price they pay. It represents the net benefit or 'surplus' value received by the consumer beyond the cost incurred.
3970
Calculate the consumer surplus for a buyer who is willing to pay Rs20,000 for a vehicle but purchases it for Rs18,000.
Consumer surplus is defined as the difference between the maximum price a consumer is willing to pay for a good or service and the actual price they pay in the market. In this instance, the buyer's willingness to pay is Rs20,000, and the actual purchase price is Rs18,000. Therefore, the consumer surplus is Rs20,000 minus Rs18,000, which equals Rs2,000.
