Sia
Question
Macroeconomics
Posted 10 months ago
If the price elasticity of demand for books is 5 , what happens if a bookseller increases the price of books?
Choose 1 answer:
(A) The price elasticity of demand will decrease.
(B) There is no change to the bookseller's total revenue.
(C) Consumer spending on books increases.
(D) The bookseller's total revenue increases.
(E) The bookseller's total revenue decreases.
Sign in to unlock the answer
Answer from Sia
Posted 10 months ago
Solution
a
Price Elasticity of Demand (PED): PED measures how much the quantity demanded of a good responds to a change in the price of that good. It is calculated using the formula
b
Interpretation of PED Value: A PED value of 5 indicates that the quantity demanded is highly responsive to price changes. Specifically, for a 1% increase in price, the quantity demanded will decrease by 5%
c
Total Revenue and PED: Total revenue is calculated as the price of the good multiplied by the quantity sold. If demand is elastic (PED > 1), an increase in price will lead to a proportionally larger decrease in quantity demanded, thus decreasing total revenue
d
Application to the Bookseller: Since the PED for books is 5, an increase in the price of books will result in a significant decrease in the quantity demanded. This will lead to a decrease in the bookseller's total revenue
Answer
E. The bookseller's total revenue decreases.
Key Concept
Price Elasticity of Demand
Explanation
When the price elasticity of demand is greater than 1, indicating elastic demand, an increase in price will lead to a decrease in total revenue.
Not the question you are looking for? Ask here!
Enter question by text
Enter question by image
Unlock Smarter Learning with AskSia Super!
Join Super, our all-in-one AI solution that can greatly improve your learning efficiency.
30% higher accuracy than GPT-4o
Entire learning journey support
The most student-friendly features
Study Other Question